DOD Inventory of Contracted Services: Timely Decisions and Further Actions Needed to Address Long-Standing Issues
Published: 2016-10-31T00:00:00

Fast Facts:
DOD spent around $150 billion last year on contracts for services provided by engineers, researchers, technicians, landscapers and janitors, to name a few. So DOD should know exactly how many service contractors it has and exactly what they do—information that is crucial for making workforce and budget decisions.
Congress requires DOD to compile and review an annual inventory of its service contracts, and to use that information to make decisions. Yet, DOD has delayed taking steps to ensure that the inventory data are reliable and accurate—making it difficult to use the information as required.

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 identify the number of contractors performing services and the functions contractors performed. In 2011, Congress required DOD to use that inventory to inform certain decision-making processes, including workforce planning and budgeting. GAO has previously reported on the challenges DOD faces in compiling, reviewing, and using the inventory. Since 2011, GAO made 13 recommendations intended to improve DOD's use of the inventory. Of these, DOD has yet to fully address 8 open recommendations.
Congress included a provision in statute for GAO to report on DOD's required reviews and plans to use the inventory. This report assesses the extent to which DOD components (1) reviewed contracts and activities in the fiscal year 2014 inventory of contracted services, and (2) developed plans to use the inventory for decision making. GAO reviewed relevant laws and guidance and 40 components' inventory review certification letters, and interviewed DOD acquisition, manpower, and programming officials.
section_title: What GAO Found
paragraphs: In fiscal year 2014, 40 Department of Defense (DOD) components in total certified that they had conducted an inventory review. Components are required by DOD guidance to address six elements in their certification letters, including, for example, identifying any inherently governmental functions and unauthorized personal services contracts. More components—21 out of 40—addressed all of the required review elements compared to prior years. However, DOD components may continue to underreport the extent to which contractors were providing services that are closely associated with inherently governmental functions, a key review objective to help ensure that DOD has proper oversight in place. For example, GAO's analysis indicates that DOD obligated about $28 billion for contracts in 17 categories—such as professional and management support services—that the Office of Federal Procurement Policy and GAO identified as more likely to include closely associated with inherently governmental functions. In comparison, components identified a total of $10.8 billion in obligations or dollars invoiced for contracts that included work identified as closely associated with inherently governmental functions—either within the 17 categories or for any other category of service. Most of these functions were identified by the Army using its long-standing review process.
The military departments have not yet developed plans to use the inventory to inform workforce mix, strategic workforce planning, and budget decision-making processes, as statutorily required. DOD has made some recent progress on requiring components to identify an accountable official to lead efforts to develop plans and establish processes for using their inventories in decision making, a step GAO recommended in November 2014. However, DOD faces continued delays in deciding on the path forward for its underlying inventory data collection system, staffing its inventory management support office, and formalizing the roles and responsibilities of that office and stakeholders (see figure).
GAO previously recommended that DOD address these issues to improve the usefulness of the inventory. DOD concurred with these recommendations but has not yet addressed them. These continued delays hinder DOD's ability to use the inventory of contracted services as intended, including using the inventory data to inform workforce and budget decision-making processes.
section_title: What GAO Recommends
paragraphs: GAO is not making new recommendations in this report. In its comments, DOD noted that it intends to address GAO's eight open recommendations, including those related to determining its approach for compiling the inventory and defining the roles and responsibilities of a key support office and stakeholders.

section_title: Letter
paragraphs: The Department of Defense (DOD) is the federal government’s largest  purchaser of contractor-provided services, with $156 billion in obligations  for service contracts reported for fiscal year 2014 and $144 billion  reported in fiscal year 2015. DOD relies on contractors to perform various  functions, such as professional and management support, information  technology support, and weapon system support. Contractor personnel  constitute a key portion of DOD’s total workforce, which also includes  DOD active and reserve forces and DOD civilian employees, and are vital  to helping DOD meet its mission. While there are benefits to using  contractors to perform services for the government, the government can  become overly reliant on contractors in some situations, such as when a  contractor performs functions that put an agency at risk of losing control  over functions that are core to its mission and operations.
In recent years, Congress enacted legislation to improve DOD’s ability to  manage its acquisitions 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  (FTE) 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 statutes and regulations 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 included a provision for us to report on DOD’s implementation of  title 10 section 2330a subsections (e) and (f). This report assesses  DOD’s efforts to implement these subsections, specifically (1) subsection  (e) to review contracts and activities in the inventory of contracted  services for the fiscal year 2014 inventory and (2) 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 activities in its inventory  of contracted services pursuant to subsection (e), we focused on DOD’s  fiscal year 2014 inventory and associated review, which was the latest  inventory and review available when we initiated our work. We reviewed  DOD’s fiscal year 2014 inventory submission and review guidance,  issued on December 29, 2014 by the Under Secretary of Defense for  Acquisition, Technology, and Logistics (USD(AT&L)) and the Under  Secretary of Defense for Personnel and Readiness (USD(P&R)). This  guidance required the military departments and defense agencies to  certify—through submission of a certification letter to the USD(P&R)—that  their review was conducted in accordance with subsection (e). The  guidance also required components to report on six elements, such as  the extent to which contractors were found to be performing inherently  governmental functions and those closely associated with inherently  governmental functions, among other elements. The number of DOD  components submitting annual inventories and the associated review  certification letters has varied since fiscal year 2011 in part because, prior  to its fiscal year 2014 guidance, DOD had not identified a list of  components required to submit and review an inventory. For this report,  we focused on the 40 components that compiled a fiscal year 2014  inventory and submitted an unclassified review certification letter to  USD(P&R) by July 2016. We analyzed these 40 unclassified certification  letters to determine if components addressed all six required elements.  We also interviewed officials at USD(P&R) and USD(AT&L) responsible  for the inventory to assess changes made to the inventory guidance and  the review and certification process. We interviewed officials at each of  the military departments—the Army, Navy, and Air Force—responsible for  compiling and reviewing the inventory regarding internal guidance on the  inventory of contracted services. We also reviewed relevant DOD Office  of the Inspector General reports on the inventory of contracted services.  To gauge the extent to which DOD components identified instances in  which contractors may be performing activities closely associated with  inherently governmental functions, we identified total obligations for  contracts in the inventory that were categorized under the 17 product  service codes that the Office of Federal Procurement Policy (OFPP) and  GAO identified as likely to include closely associated with inherently  governmental functions. We compared these obligations to total  obligations certified by DOD components as for contractors performing  closely associated with inherently governmental functions in the fiscal  year 2014 certification letters. To assess the reliability of the inventory  submission data, we compared the submission data to the Federal  Procurement Data System – Next Generation (FPDS-NG) data for fiscal  year 2014, reviewed related documentation, and interviewed DOD  officials knowledgeable about the data. Based on these steps, we  determined the data were sufficiently reliable for the purposes of our  reporting objective. We did not independently assess the accuracy or  reliability of the underlying data supporting the components’ inventories of  contracted services and associated reviews.
To assess the extent to which DOD components have developed plans  and enforcement mechanisms to use the inventory to inform management  decisions pursuant to subsection (f), we used the data we collected for  our November 2014 report on this issue to establish the extent to which  each military department’s strategic workforce planning, manpower mix,  and budgeting guidance and processes required or cited the use of the  inventory of contracted services. We then interviewed officials from each  military department to determine what updates, if any, had been made to  the guidance and processes. We confirmed whether the guidance  identified in our November 2014 report remained current as of July 2016,  and identified any changes made subsequent to that report. We also  interviewed acquisition and manpower officials at each military  department to assess the status of the military department’s plans to  identify an accountable official to lead and coordinate efforts to develop  plans and enforcement mechanisms. We reviewed components’ fiscal  year 2014 inventory submissions to determine the extent to which  components increased their use of the Contractor Manpower Reporting  Application (CMRA) for developing their inventories compared to prior  years. We also assessed DOD’s efforts to develop and implement the  Enterprise-wide Contractor Manpower Reporting Application (ECMRA)— a common data system based on four separate CMRA systems within  DOD—and to establish an office to support these efforts—the Total Force  Management Support Office (TFMSO)—by interviewing officials from  USD(P&R), the military departments, and TFMSO.
We conducted this performance audit from February 2016 to October  2016 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
subsections: section_title: Inventory Compilation Requirements
paragraphs: In part to improve the information available and management of DOD’s  acquisition of services, in 2001 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.  Congress amended section 2330a in 2008 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 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 subsection 2330a(a) of title  10 of the U.S. Code.
Within DOD, USD(AT&L), USD(P&R), and the Office of the Under  Secretary of Defense (Comptroller) have shared responsibility for issuing  guidance for compiling and reviewing the inventory. USD(P&R) compiles  the inventories prepared by the components, and USD(AT&L) is to submit  a consolidated DOD inventory to Congress no later than June 30 of each  fiscal year. DOD has submitted annual, department-wide inventories for  fiscal years 2008 through 2015, the most recent submitted on  September 20, 2016 (see table 1).
Since DOD began reporting on the department-wide inventory of  contracted services in fiscal year 2008, the primary source used by most  DOD components to compile their inventories, with the exception of the  Army, has been FPDS-NG. The Army developed its CMRA system in  2005 to collect information on labor-hour expenditures by function,  funding source, and mission supported on contracted efforts, and has  used its CMRA as the basis for its inventory. The Army’s CMRA is  intended to capture 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 for which the services are being  performed. In instances where contractors are providing different services  under the same contract action, 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: Subsection 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 activities in the inventory for which they are  responsible within 90 days of the inventory being submitted to Congress.  USD(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 in 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 in the inventory do  not include any functions closely associated with inherently  governmental functions.
This review also requires the secretaries of the military departments and  heads of defense agencies to identify activities 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 to give special  consideration to converting those functions to DOD civilian performance.
In addition, subsection 2330a(f) of title 10 of the U.S. Code requires the  secretaries of the military departments or heads of the defense agencies  responsible for contracted services in the inventory to develop a plan,  including an enforcement mechanism and approval process, for using 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 potential 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: Over the past five years, we have issued several reports on DOD’s efforts  to compile and review its inventory of contracted services and made  recommendations on a variety of issues related to the inventories. For  example, in January 2011, we found that the military departments had  differing approaches to reviewing the activities performed by contractors,  and the department stated it had a goal of collecting manpower data from  contractors for future inventories. We recommended that the  department develop a plan of action to facilitate the department’s intent of  collecting manpower data and address other limitations to its current  approach to meeting inventory requirements. The department concurred  with our recommendation but had not addressed it as of August 2016. In  November 2015, we found that the lack of documentation on whether a  proposed contract includes closely associated with inherently  governmental functions may result in inventory review processes  incorrectly reporting these functions, and recommended that DOD require  acquisition officials to document, prior to contract award, whether the  proposed contract action includes activities that are closely associated  with inherently governmental functions. DOD concurred with our  recommendation, but has not yet implemented it. A full list of our prior  reports on DOD’s inventory of contracted services, the recommendations  from those reports, and the current status of those recommendations— including eight that remain open—is included in appendix I.
Our prior work has also consistently found that the absence of a complete  and accurate inventory of contracted services hinders DOD’s ability to  improve its management of these services. For example, in a June 2016  report on DOD headquarters personnel reduction efforts, we found that  DOD does not have reliable data for assessing headquarters functions  and associated costs, including those performed by contractor  personnel. We concluded that without reliable information, DOD may  not be able to accurately assess specific functional areas or identify  potential streamlining and cost savings opportunities. In a December  2015 report on civilian and contractor personnel reductions, we found that  limitations in the methodology for contractor FTE estimates in the  inventory may hinder efforts to implement statutorily mandated reporting  on reductions in contractor personnel. Further, in a February 2016  report on DOD efforts to forecast service contract requirements, we found  that existing data on DOD’s future spending for contracted service  requirements was not fully captured by DOD’s programming and budget  processes, an effort the inventory of contracted services is intended to  support. We noted that critical to being more strategic is knowing what  DOD is spending today and what DOD intends to spend in the future.
section_title: Components’ Reporting of Inventory Review Elements Continued to Improve, but Limitations with the Resulting Information Provided in Certification Letters Persist
paragraphs: More DOD components conducted and certified the completion of an  inventory review as required by subsection 2330a(e) of title 10 of the U.S.  Code and DOD’s guidance, respectively, in fiscal year 2014 as compared  to previous years. Overall, we found that the 40 components’ certification  letters addressed more of DOD’s required elements in comparison to  prior years, with over half of the components including all six of the  required elements. In some areas, however, we continued to find  limitations with the information provided in the certification letters. For  example, the level of detail and input provided on the use of the inventory  to inform annual program reviews and budget processes varied. In  addition, we continued to find significant differences and potential  underreporting in the extent to which components identified instances of  contractors providing services that are closely associated with inherently  governmental functions in their inventories. For example, through its  review process, the Army identified $8.1 billion in invoiced dollars for  contracts that include closely associated with inherently governmental  functions, nearly three times the amount identified by the Navy, Air Force,  and other defense agencies collectively for similar types of contracts.
subsections: section_title: Certification Letters Included More Required Elements but Level of Detail in Review Results Varied
paragraphs: USD(AT&L) and USD(P&R)’s December 29, 2014, guidance governing  the fiscal year 2014 inventory of contracted services required the military  departments and defense agencies to certify—through submission of a  certification letter to the USD(P&R)—that their review was conducted in  accordance with subsection 2330a(e) of title 10 of the U.S. Code. As of  July 2016, 40 DOD components reporting for fiscal year 2014 certified  that they had reviewed their inventories. Notably, the Air Force, which  represented close to 18 percent of DOD’s contract obligations for services  in fiscal year 2014, submitted a review certification letter for the first time  since the fiscal year 2011 inventory. The Army submitted an interim  certification letter in April 2016 based on a review of the contracted  functions performed by 73 percent of its contractor FTEs from its fiscal  year 2014 inventory.
DOD’s guidance for fiscal year 2014, among other things, requires  components to include six elements in their certification letters. DOD  components’ certification letters have generally improved each year since  2011 in terms of the number of elements addressed. See figure 2 for the  list of required elements and the percentage of components that  addressed each element in their certification letters for fiscal years 2011  to 2014.
Overall, in fiscal year 2014 components addressed more of DOD’s  required elements in comparison to prior years, as 21 of the 40  components—or over half—addressed all required elements in their  certification letters (see figure 3).
While these findings demonstrate that improvements have been made in  terms of compliance with the review requirements, review results reported  in certification letters varied in terms of the level of detail and insights  provided on certain elements, in particular for the element that requires  components to provide input on actions being taken or considered with  regard to annual program review and budget processes based on the  inventory review results. For example, of the 23 components that we  found addressed this requirement in their fiscal year 2014 certification  letters,  the Navy and one other component discussed specific actions taken  or plans based on the inventory review results to inform existing or  future program and budget processes; nine components, including the Air Force, discussed their existing or  planned program review or budget processes, but did not explicitly  state how the review results would be used to inform those processes;  ten components, including the Army, described the inventory as one  source of information available to inform programming and budget  matters, but did not provide input on whether specific actions were  taken or considered based on those review results; and  in two cases, components reiterated language from DOD’s review  guidance in their certification letters to affirm that they had addressed  the required element, but did so without adding any component- specific information.
Of the 17 components that we found did not address the requirement in  their fiscal year 2014 certification letters, 12 did not include any narrative  related to the required element and therefore it is not clear whether the  component had considered the use of the inventory in program reviews  and budget processes. Three components’ certification letters stated  explicitly that no actions were taken or considered based on the fiscal  year 2014 review results, nor did they provide additional narrative to  indicate whether the inventory review information is used generally to  inform programming and budget matters. Two components each  submitted a consolidated inventory and certification letter consisting of the  collective review results and responses for the components under their  purview, in which not all of the individual responses addressed the  requirement.
section_title: Components May Continue to Be Underreporting Contractors Performing Closely Associated with Inherently Governmental Functions
paragraphs: Similar to our November 2015 report, we found that components may  continue to be underreporting instances of contractors providing services  that are closely associated with inherently governmental functions in their  inventory review. In this regard, our analysis indicates that DOD obligated  about $28 billion for contracts in the 17 product service codes that OFPP  and GAO identified as more likely to include closely associated with  inherently governmental functions. In comparison, of the 40 components  reporting for fiscal year 2014, 25 components identified a total of  $10.8 billion in obligations or dollars invoiced for contracts that included  work identified as closely associated with inherently governmental  functions—either within the 17 product service codes or for any other  category of service. We also found significant disparity among the  components’ reporting of these functions (see figure 4).
Specifically, through its review process, the Army identified $8.1 billion in  invoiced dollars for contracts that include closely associated with  inherently governmental functions. In comparison, our analysis of  Army’s inventory data identified $10.2 billion in invoiced dollars for Army  contracts in the 17 product service codes. In contrast, the Navy, Air  Force, and other defense agencies collectively identified only about  $2.7 billion in obligations and invoiced dollars for contracts that include  closely associated with inherently governmental functions in their  inventories, while our analysis of each component’s inventory data  identified $17.9 billion in collective obligations for contracts in the 17  product service codes.
We previously found shortcomings with DOD’s annual inventory review  guidance, such as a lack of specific guidance on how to identify or review  contract functions, and concluded that, as a result, components may be  missing opportunities to properly identify contractors performing closely  associated with inherently governmental functions. In November 2014, we  recommended, in part, that DOD revise its guidance to clearly identify the  basis for selecting contracts to review and to provide approaches the  components may use to conduct inventory reviews to ensure that the  nature of how the contract is being performed is adequately considered.  In November 2015, we reported that DOD’s December 2014 guidance for  the fiscal year 2014 inventory did not address our recommendation to  provide such clarification; however, DOD officials noted that a risk-based  approach to select which contracts to review may be appropriate. As  such, we recommended that DOD ensure that components review, at a  minimum, those contracts within the product service codes identified as  requiring heightened management attention and as more likely to include  closely associated with inherently governmental functions. DOD’s March  2016 guidance for the review of the fiscal year 2015 inventory—the first  issued after our recommendation—requires components to review those  contracts; however, it is too soon to determine what effect the revised  guidance will have on the components’ forthcoming inventory reviews.
In addition to the lack of specific inventory review guidance, our  November 2015 review also identified other factors that may also  contribute to components incorrectly identifying contracts that may  include closely associated with inherently governmental functions during  the pre-contract award process. Specifically, we concluded that the lack  of a requirement for acquisition officials to document, during the pre- award process, whether a proposed contract includes closely associated  with inherently governmental functions hinders a component’s ability to  both identify and report on contractors performing such functions. The  Army’s pre-award process, specifically the Request for Services Contract  Approval form, requires documentation of a determination whether a  contract includes closely associated with inherently governmental  functions; however, the Air Force and Navy do not have department-wide  requirements to document this determination in their contract files. DOD  concurred with both of our November 2015 recommendations to require  acquisition officials to document, prior to contract award, whether contract  actions include such activities, and to provide clear instructions on how  the service requirement review boards will be used to identify whether  contracts contain such functions. Officials from the Office of Defense  Procurement and Acquisition Policy—the office within USD(AT&L)  responsible for contracting and acquisition policy—indicated at that time  that a forthcoming DOD Instruction on service acquisitions would include  direction to consider planned activities under a contract during the service  requirement review boards. DOD Instruction 5000.74, issued in January  2016, includes discussion related to identifying closely associated with  inherently governmental functions in the inventory, but not in the context  of the service requirement review boards.
section_title: Continued Delays on Key Management Decisions Hinder Efforts to Develop Statutorily Required Plans to Use the Inventory to Inform Workforce and Budget Decisions
paragraphs: The military departments generally have not developed plans to use the  inventory of contracted services to inform workforce mix, strategic  workforce planning, and budget decision-making processes, as required  by the National Defense Authorization Act for Fiscal Year 2012. DOD  has recently made progress in identifying accountable officials to develop  plans and establish processes for using the inventories in decision  making, a step we recommended in November 2014 to help ensure the  inventory is integrated into key management decisions. Despite this effort,  DOD faces continued delays to key steps in the implementation of the  inventory process, including choosing the path forward for its underlying  inventory data collection system, staffing its inventory management  support office, and formalizing the roles and responsibilities of that office  and its relationship to the military departments and other stakeholders.  Collectively, these persistent delays hinder the department’s ability to use  the inventory of contracted services as intended.
subsections: section_title: Military Departments Have Not Developed Plans to Facilitate Use of the Inventory
paragraphs: The military departments generally have not developed plans and  enforcement mechanisms as required by subsection 2330a(f) of title 10 of  the U.S. Code to use the inventory of contracted services to inform  workforce mix, strategic workforce planning, and budget decision-making  processes. Our November 2014 report on the fiscal year 2012 inventory  found that the military departments—with the exception of the Army,  which used the inventory to inform decisions about workforce mix and  insourcing—lacked plans and processes to incorporate the inventory into  decision making. While DOD’s December 2014 guidance for the fiscal  year 2014 inventory more explicitly required components to use the  inventory reviews to inform programming and budget matters, and to  inform their strategic workforce planning efforts—which carried through to  their fiscal year 2015 guidance—our current work found that the military  departments generally continue to lack plans and processes to do so.  Appendix II presents the findings of the November 2014 report on these  plans and processes, with updates, where appropriate.
At the department level, in January 2016, USD(AT&L) issued DOD  Instruction 5000.74, Defense Acquisition of Services, which establishes  policy, assigns responsibilities, and provides direction for the acquisition  of contracted services. In commenting on our November 2015 report,  DOD stated that this instruction would provide guidance on identifying  closely associated with inherently governmental activities. The  instruction notes that DOD components will submit an annual inventory of  contracted services, and that the inventory and associated review are to  be used to inform acquisition planning and workforce shaping decisions,  but does not provide any specific guidance as to how the inventories are  to contribute to such decisions, including guidance for identifying closely  associated with inherently governmental activities. DOD officials more  recently stated that this instruction is intended as policy for acquisition  officials, not as a document on workforce planning.
We previously found that the responsibility for developing plans and  enforcement mechanisms to use the inventory for decision-making  processes was not clearly assigned and was divided across multiple  offices. In our November 2014 report, we recommended that the  secretaries of the military departments identify an accountable official to  lead and coordinate efforts across the functional communities to develop  plans and establish processes for using the inventory for decision making.  DOD concurred with this recommendation. No components identified an  accountable official with their fiscal year 2014 inventory submission.  However, DOD’s March 2016 guidance for the fiscal year 2015 inventory  explicitly required the identification of an accountable official to help  ensure that the inventory is integrated into key management decisions.
As of July 2016, 41 components had submitted their fiscal year 2015  inventories, of which 30 identified an accountable official in their  transmittal letter. However, none of the three military departments, which  represent 73 percent of service contract obligations reported in the fiscal  year 2014 inventory, have yet identified an accountable official. In its  transmittal letter for fiscal year 2015, the Air Force stated that it first  needs to better understand the roles and responsibilities of the inventory  management support office. The Army’s fiscal year 2015 transmittal letter  states that it is in the process of identifying an appropriate official. As of  July 2016, the Navy has not yet submitted its fiscal year 2015 transmittal  letter.
section_title: Slow Pace of Finalizing an Approach for Collecting Inventory Data Hinders Progress in Using Inventory for Decision Making
paragraphs: DOD has twice conducted reviews in the past two years to assess its  approach to conducting the inventory. DOD officials noted that, to some  degree, these reviews have contributed to delays in choosing the path  forward for its underlying inventory data collection system, staffing the  support office, and formalizing the roles and responsibilities of that office  and its relationship to the military departments and other stakeholders.  These delays may, in turn, hinder the development and implementation of  plans and enforcement mechanisms for using inventory data to inform  workforce and budget decision-making processes.
As shown in figure 5, DOD has struggled since 2011 to determine the  best way forward for collecting data for the inventories.
In September 2014, DOD undertook an internal review of strategic  options to identify, develop, and consider all reasonable options, in both  the short and long terms, and propose courses of action for appropriate  enterprise solutions to facilitate data collection for the inventory. However,  DOD’s strategic review of options in 2014 did not lead to a definitive way  forward. In November 2014, we found that DOD’s strategic review of  options raised questions as to whether DOD will continue to implement  ECMRA—a DOD-wide inventory data collection system modeled after the  Army’s CMRA system—or attempt to develop a new system. We  concluded that, until such time as DOD components are able to collect  the required data for their inventories, the utility of the inventory for  making workforce decisions will be hindered. We recommended that,  should a decision be made to use or develop a system other than the  ECMRA system currently being fielded, USD(P&R) should document the  rationale for doing so and ensure that the new approach provides data  that satisfies the statutory requirements for the inventory. In 2015, the  Joint Explanatory Statement to the National Defense Authorization Act for  Fiscal Year 2016 mandated that DOD report on the approach the  department is taking to comply with the inventory requirement and  whether it is producing a product that enhances oversight of service  contracting activities. DOD contracted with the RAND National Defense  Research Institute in December 2015 to assess the methods used by  DOD to produce the inventory of contracted services and to recommend  improvements, including alternative methods of collecting, processing,  and reporting data on contracted services. RAND provided preliminary  briefings to DOD in March and May of 2016, and its final report is  expected to be delivered later this year.
While awaiting the results of its internal review and, subsequently, the  RAND review, DOD delayed fully staffing its support office and defining its  specific roles, authorities, and relationships to the military departments  and other stakeholders, as shown in figure 6.
In 2014, a USD(P&R) official told us that DOD would defer the use of  additional resources for the support office until such time as there had  been a decision whether to pursue a new approach or continue forward  with implementation of ECMRA. Similarly, in 2016, USD(P&R) officials  told us that they wanted to be more confident of the planned direction for  the inventories before committing to additional hiring.
Further, more than two years since the support office was funded, DOD  has yet to define the roles and responsibilities of the office. In November  2015, we recommended that USD(P&R) clearly identify these longer term  relationships between the support office, military departments, and other  stakeholders with respect to collection and use of inventory data. DOD  concurred and told us that the release of a memorandum of agreement  between the Assistant Secretary of Defense for Manpower and Reserve  Affairs and the Director of the Defense Human Resource Activity on short  term roles and responsibilities for the support office would do so, but as of  August 2016, the memorandum of agreement had yet to be formalized.  Additionally, DOD officials indicated that the memorandum of agreement  will not address the roles to be played by the support office, the military  departments, and other stakeholders in exploring the longer term solution  to collecting contractor manpower data and integrating inventory data  within the military departments’ decision-making processes.  Supplemental agreements will be necessary to formalize these  relationships. The absence of clearly identified relationships between the  support office and other stakeholders has hindered efforts to implement  ECMRA and integrate the data into decision-making processes that will  meet user needs and expectations.
In addition to these uncertainties about finalizing an approach to the  inventory, our review found that DOD components’ reliance on data  captured in their CMRA systems for their inventories has varied. DOD’s  March 2014 guidance for the fiscal year 2013 inventory, as well as  guidance for subsequent inventories, required components to include the  percentage of their total contracts that were reported by contractors in  their CMRA system and the extent to which reported data were used to  support their inventory submission. Contractors are required to report  labor hour data by the end of October for work executed during the period  of performance within the one year period beginning October 1 of the  prior year and ending September 30. DOD components are then  supposed to use this contractor-reported data from CMRA to help  develop their inventories. We found that 22 out of the 40 components,  comprising about 96 percent of total FTEs reported in the DOD inventory,  reported using CMRA data for the fiscal year 2014 inventory submission.  In contrast, only nine components reported using CMRA to do so in the  fiscal year 2013 inventory. Table 2 identifies changes in use of CMRA  data by the military departments from fiscal year 2013 to fiscal year 2015.
Air Force and Navy both continue to rely heavily on FPDS-NG data to  derive the contractor FTEs for those contracts not entered into CMRA.  Navy officials stated that they do not view all contractor-reported CMRA  data to yet be robust enough to support consistent, reliable use for the  inventory. However, as we have previously reported, the FPDS-NG  system has several limitations that limit its utility for purposes of compiling  a complete and accurate inventory, including 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 being able to identify the requiring activity specifically, not capturing service contracts awarded on behalf of DOD by non- not being able to determine the number of contractor FTEs used to  perform each service.
Since 2011, we have made 13 recommendations to help improve how  DOD collects, reviews, and uses the data from the inventory of contracted  services (see appendix I for a complete list and the status of DOD’s  actions to address them). We are not making any new recommendations  in this report, but rather we underscore the need to address the 8  recommendations that remain open. In particular, DOD needs to resolve  the long-standing delays and uncertainties regarding implementation of  the ECMRA system—or an alternative to that system—which have  hindered efforts to provide reliable and accurate data. Over five years  ago, we recommended that DOD develop a plan of action with  timeframes and necessary resources to measure DOD’s progress in  implementing a common data system and we offered a similar  recommendation two years ago when it began to explore options for an  appropriate enterprise solution to facilitate data collection. Delays in  making that decision have had a cascading effect on fully staffing its  management support office, as well as defining the roles, responsibilities,  and relationships between this office, the military departments, and other  stakeholders. Continued delays in making a decision increase the risk  that DOD will remain unable to collect and analyze service contract data  and develop associated business processes in a manner that supports  workforce and budget planning. Conversely, choosing a path forward,  providing a rationale for that choice, and developing a plan of action with  implementation timeframes and milestones could help the department  move toward an environment in which it can stop endlessly agonizing on  whether to use ECMRA or an alternative system and focus on what data  to collect and how best to use that data once collected. As we concluded  in January 2011, the real benefit of the inventory will ultimately be  measured by its ability to inform decision making. We further noted that  the absence of a way forward was hindering the achievement of this  objective. More than five years later, those conclusions remain  unchanged.
section_title: Agency Comments
paragraphs: We are not making new recommendations in this report. We provided a  draft of this report to the Department of Defense for comment. In its  written comments, which are reprinted in appendix III, DOD stated that it  is committed to improving its processes surrounding the inventory and to  working to close the eight open recommendations discussed in the report.  DOD also provided technical comments, which we incorporated as  appropriate.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense; the Secretaries of the Army, Air  Force, and Navy; the Under Secretary of Defense for Personnel and  Readiness; and the Under Secretary of Defense for Acquisition,  Technology, and Logistics. 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: Past GAO Reports and Recommendations on the Inventory of Contracted Services
section_title: Appendix II: Summary of Prior Findings on the Military Departments’ Implementation of Plans to Facilitate Use of the Inventory
paragraphs: In November 2014, GAO reported on the status of efforts by the military  departments to develop plans with enforcement mechanisms to use the  inventory of contracted services to inform management decisions in three  primary areas: strategic workforce planning; workforce mix; and  budgeting. In November 2015, we updated these findings. In those  reports, we determined that the military departments generally had not  developed plans and enforcement mechanisms to use the inventory to  inform these decisions, as required by subsection 2330a(f) of title 10 of  the U.S. Code. Our current work found minimal updates to these  guidance with specific reference to use of the inventory of contracted  services for management decisions. The primary exception relates to  budgeting, where the Army’s Command Program Guidance memorandum  for the Fiscal Years 2018-2022 Program Objective Memorandum requires  the Army to use the inventory review when formulating budget requests  for contracted services. The following summarizes the degree to which  the Department of Defense (DOD) and the military departments’ guidance  currently require the use or consideration of the inventory in these areas  and identifies where DOD or the military departments have updated their  guidance since our November 2015 report. Updates since our November  2015 report are italicized in the following tables.
subsections: section_title: Strategic Workforce Planning, Workforce Mix, and Insourcing Guidance Generally Do Not Require the Use of the Inventory
paragraphs: The Under Secretary of Defense for Personnel and Readiness  (USD(P&R)) has overall responsibility for developing and implementing  DOD’s strategic workforce plan to shape and improve DOD’s civilian  workforce, including an assessment of the appropriate total force mix.  USD(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. The guidance pre-dates 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 November 2014 and 2015 reviews, stated that  DOD’s plans for identifying and assessing workforce mix will leverage the  inventory of contracted services, but did not provide any additional details  on using the inventory.
None of the three military departments had developed a statutorily  required plan or enforcement mechanism to use the inventory of  contracted services for strategic workforce planning and generally they  had 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 USD(P&R) officials,  revisions to this directive, which are currently under review, will 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, memorandums. These memorandums 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 Full- Time Equivalents (FTE) Are Included in the Budget
paragraphs: DOD’s Financial Management Regulation provided, among other things,  guidance to the military departments on budget formulation and  presentation; however, these regulations did not require the military  departments to use the inventory in formulating and presenting their  budgets. At the military department level, the Air Force had issued  additional instructions in terms of budget formulation and presentation.  However, the Air Force’s guidance did not require the use of the  inventory. More recently, the Army’s February 2016 guidance, Command  Program Guidance Memorandum for the Fiscal Years 2018-2022  Program Objective Memorandum, requires the use of the inventory  review certification in budget formulation.
The Comptroller issued supplemental guidance requiring, among other  things, that the military departments and defense components provide  information on the number of FTEs as required under section 235 of title  10 of the U.S. Code, but this guidance did not require reporting the  amount of funding requested for contracted services. The Comptroller  guidance for budget submissions from all components instructed DOD  components to ensure that contractor FTEs reported in the budget exhibit  were consistent with those in 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 could not  identify how the Army estimated FTEs in the Army’s budget submission  (see table 6).
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, Janet McKelvey (Assistant  Director); Emily Bond; Virginia Chanley; Mackenzie Doss; Kristine  Hassinger; Julia Kennon; Scott Purdy; and Roxanna Sun made significant  contributions to this review.