Managing Service Contracts: Recent Efforts to Address Associated Risks Can Be Further Enhanced
Published: 2011-12-07T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In fiscal year 2010, civilian agencies obligated $136 billion on service contracts, including obligations for professional and management support services such as program evaluation and acquisition support. Many of these services increase the risk that contractors may inappropriately influence the government's authority, control, and accountability for inherently governmental decisions. GAO was asked to (1) determine the extent to which civilian agencies use professional and management support service contracts and the types of activities acquired, (2) determine if agencies consider and mitigate risks associated with contractors providing these services, and (3) assess agencies' response to recent Office of Management and Budget (OMB) efforts related to acquiring these services. GAO analyzed Federal Procurement Data System - Next Generation (FPDS-NG) data and selected a nongeneralizable sample of 230 statements of work and 12 case studies from five agencies with one-third of obligations for these services in fiscal year 2010. GAO also reviewed agency and governmentwide guidance and met with agency and OMB officials.
section_title: What GAO Found
paragraphs: From fiscal years 2005 through 2010, civilian agency obligations on contracts for professional and management support services increased 44 percent, from $22 billion to $32 billion (in 2010 dollars), more than twice the rate of increase for other services. For the five agencies GAO reviewedthe Departments of Homeland Security, Transportation, and Housing and Urban Development, the United States Agency for International Development, and the National Science Foundationmore than half of the 230 statements of work for professional and management support service contracts requested services that closely support the performance of inherently governmental functions. Using these services can inappropriately influence government decisionmaking if proper oversight is not provided. The five agencies generally did not consider and mitigate risks of acquiring professional and management support services prior to awarding the 12 contracts GAO reviewed. The Federal Acquisition Regulation requires agencies to provide enhanced management oversight for contracts that closely support inherently governmental functions. For the 12 contracts, few of the officials said they considered whether contracted services included such functions. In some cases, officials said they later became concerned that contractors might perform inherently governmental functions or that government employees lacked expertise to oversee contracted work, and took steps to mitigate risks. Guidance from four of the five agencies did not include processes to identify risks or ensure enhanced management oversight when contractors perform such services.
Recent congressional and OMB guidance has emphasized the need for agencies to examine their use of service contracts and the related risks. The five agencies have participated in these efforts, including service contract inventories and multisector workforce pilots, to varying degrees, but only DHS has taken steps to incorporate related OMB efforts into processes that examine their use of professional and management support services. A September 2011 OMB policy letter requires agencies to develop procedures to improve their management of risks when contracting for these services, but does not include an implementation deadline. Further, two OMB efforts have focused on selected professional and management support service codes from FPDS-NG that require increased agency attention, but the efforts exclude two related codes that accounted for significant obligations and that may similarly contain risks.
section_title: What GAO Recommends
paragraphs: GAO recommends that OMB establish a deadline for its recent requirement that agencies develop procedures for services, including those that closely support inherently governmental functions, and include two FPDS-NG codes in guidance for agencies' use of service contracts and in the cost savings initiative for management support services. OMB generally agreed with the recommendations.

section_title: Letter
paragraphs: The government relies on contractor services to meet a variety of mission  needs, and these contracts account for the majority of agencies’ contract  dollars. In fiscal year 2010, almost 80 percent, or $136 billion, of civilian  agency contract obligations were used to purchase contractor services.  This includes contracts for professional and management support  services, a category of services in which contractors perform functions  ranging from program evaluation and acquisition support to systems  engineering services.
GAO, Defense Acquisitions: Further Actions Needed to Address Weakness in DOD’s  Management of Professional and Management Support Contracts, GAO-10-39  (Washington, D.C.: Nov. 20, 2009) and Department of Homeland Security: Improved  Assessment and Oversight Needed to Manage Risk of Contracting for Selected Services,  GAO-07-990 (Washington, D.C.: Sept. 17, 2007). federal employees rather than contractors for functions closely associated  with the performance of inherently governmental work, which may be  found in contracts for professional and management support services.  Inherently governmental functions require discretion in applying  government authority or value judgments in making decisions for the  government; as such they must be performed by government employees  and not contractors. The Office of Management and Budget (OMB) has  initiated several efforts to improve how agencies manage their multisector  workforce of federal employees and contractor personnel and which  address the inherent risk involved in contracting for functions closely  associated with the performance of inherently governmental functions. In  this context, you asked us to review how civilian agencies manage their  use of contracts for professional and management support services.  Specifically, you asked us to (1) determine to what extent civilian  agencies use professional and management support service contracts  and what types of activities are being acquired, (2) determine if agencies  considered and mitigated risks associated with contractors providing such  services, and (3) assess agencies’ responses to recent governmentwide  efforts related to contracting for professional and management support  services.
To conduct this work, we analyzed contract data from the Federal  Procurement Data System – Next Generation (FPDS-NG) and selected  and reviewed 230 contract statements of work (SOW) for professional  and management support services, from which we selected 12 contracts  and task orders for more in-depth case-study reviews. We also reviewed  agency and governmentwide guidance related to professional and  management support services and their related risks and spoke with  agency and OMB officials.
To determine the extent to which civilian agencies contract for  professional and management support services, we reviewed FPDS-NG  data for fiscal years 2005 through 2010 for contracts categorized as  “Professional, Administrative, and Management Support Services.” We  selected five civilian agencies to provide a closer review: the Departments  of Homeland Security (DHS), Transportation (DOT), and Housing and  Urban Development (HUD), the U.S. Agency for International  Development (USAID), and the National Science Foundation (NSF). They  were chosen in part to represent a variety of agency missions and based  on the proportion of their obligations for professional and management  support services in relation to their overall service obligations. Together,  these agencies accounted for one-third of civilian agency obligations for  professional and management support services in fiscal year 2010.  Because FPDS-NG does not provide definitions for service codes, to  better understand the services provided we judgmentally selected a  nongeneralizable sample of 235 SOWs from the five agencies, selecting  50 each from DHS, DOT, HUD, and USAID and 35 from NSF (which had  fewer contracts and task orders to select from compared to the other four  agencies). To obtain a range of services and contract sizes, the selection  factors included varying contract obligation amounts and types of  services, and, when available, descriptions of the services that indicated  the requested services closely supported inherently governmental  functions or functions that might be close to their agencies’ missions. Five  of the 235 SOWs were either not available from the agencies during the  course of our audit work or not sufficiently detailed for our review  purposes, so we ultimately reviewed 230 SOWs.
To determine if agencies consider and mitigate risks associated with  professional and management support services, we judgmentally  selected 12 contracts and task orders for further review as case studies  based on a range of factors, including comparing the contract description  to guidance in the Federal Acquisition Regulation (FAR) to help ensure  we selected services that might closely support inherently governmental  functions. For each case study, we met with contracting officers,  contracting officer’s technical representatives (COTR), and other program  officials and reviewed selected contract documents for evidence of risk  consideration and mitigation. We also reviewed agency guidance and  interviewed senior agency officials in procurement, management, and  human capital offices and reviewed agency documents to learn about  guidance that assists in mitigating risks associated with professional and  management support services contracting. We compared these policies  and practices to OMB and FAR guidance.
To assess agencies’ response to OMB efforts, we met with Office of  Federal Procurement Policy (OFPP) officials and reviewed statutes and  OMB documents, memos, and policy letters that address service  contracting. We interviewed agency officials and reviewed available  documentation about steps taken to respond to these efforts. See  appendix I for a more in-depth description of our scope and methodology.
We conducted this performance audit from December 2010 to December  2011 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The Federal Procurement Data System – Next Generation (FPDS-NG)  uses more than 300 codes, organized in 23 categories, to describe the  services purchased by federal agencies. Among these categories—which  capture services ranging from utilities and housekeeping services to  medical services—are professional and management support services.  Examples of service categories and codes are listed in table 1.
For almost 20 years, OMB procurement policy has indicated that  agencies should provide a greater degree of scrutiny when contracting for  professional and management support services, which include acquisition  support, program evaluation, and other services that can affect the  government’s decision-making authority. Without proper management  and oversight, such services risk inappropriately influencing the  government’s control over and accountability for decisions that may be  supported by contractors’ work. Thus, the policy directs agencies to  ensure that they maintain sufficient government expertise to manage the  contracted work. The FAR also addresses the greater need for  management oversight associated with contractors providing services  that have the potential to influence the authority, accountability, and  responsibilities of government employees. Contractors are prohibited  from performing inherently governmental functions, such as determining  agency policy, directing federal employees, and approving contractual  documents, which require such discretion in applying government  authority or value judgments in making decisions that they can only be  performed by government employees. The FAR also identifies services  that can approach being inherently governmental, based on the nature of  the function or the manner in which the work is performed or  administered. Contractors can provide services that closely support  inherently governmental functions, but agencies must provide greater  scrutiny and enhanced management oversight to ensure that the  contractors’ work does not limit the authority, accountability, and  responsibilities of government employees. The FAR includes an  illustrative list of 19 services that closely support inherently governmental  functions, many of which—such as supporting policy development and  providing legal advice—are captured in FPDS-NG codes in the  professional and management support services category. See appendix II  for examples of inherently governmental and closely supporting inherently  governmental functions outlined in the FAR. Figure 1 illustrates how the  risk of contractors influencing government decision making is increased  as professional and management support services move closer toward  supporting inherently governmental functions.
Long-standing FAR and OMB guidance addresses the need for enhanced  oversight, but in prior work we found that DOD and DHS officials were  often unaware of this policy. The guidance states that having a sufficient  number of trained and experienced government employees is necessary  when contracting for professional and management support services, but  does not describe how agencies should provide enhanced management  oversight for such contracts.
section_title: Civilian Agencies Have Increasingly Acquired a Wide Range of Professional and Management Support Services, Which May Include Risks
paragraphs: Federal civilian agencies have increasingly relied on contractors to  provide professional and management support services—such as  program management and evaluation, engineering and technical  services, and acquisition support—with a growth rate of obligations in this  category that is more than twice the growth rate of all other service  contract obligations over a 5-year period. From fiscal year 2005 through  fiscal year 2010, civilian agency obligations for professional and  management support service contracts increased $9.9 billion dollars, or  44 percent, to $32 billion (adjusted for inflation to 2010 dollars). (See fig.  2.) This was more than double the 19 percent increase experienced by all  other service contracts, which increased from $87.8 billion to $104 billion  in inflation-adjusted dollars during the same time period.
The five agencies selected for review—DHS, USAID, DOT, HUD, and  NSF—obligated a larger percentage of their fiscal year 2010 service  contract dollars on professional and management support services  compared to all civilian agencies, including the five reviewed. (See table  2.)
For the five agencies we reviewed, the activities contractors provided  through agencies’ professional and management support service  contracts often appeared to closely support the performance of inherently  governmental functions. Use of these services can result in the loss of  government accountability and control if proper oversight is not provided.  Of the 230 professional and management support service contract  statements of work (SOW) we reviewed from the five agencies, at least  120 contracts—or more than half—requested services that the FAR  identifies as closely supporting inherently governmental functions,  including services related to budget preparation, reorganization and  planning activities, evaluation of another contractor’s performance, and  acquisition support. For example, a DOT contract requested support for  acquisition functions, including the creation of independent government  cost estimates and analysis and recommendations related to new  acquisitions. In another contract, HUD requested that contractors assist  management and staff in developing a new strategic plan for the agency.  The SOW called for contractors to work with stakeholders inside and  outside the agency by conducting interviews, documentation reviews and  surveys to understand the agency’s current operational environment and  associated challenges, risks, and opportunities. Tasks also included  assisting in the identification of agency priorities and transformation  initiatives. The remaining SOWs we reviewed included services that did  not closely support inherently governmental functions, such as a contract  for records management and processing at DHS.
subsections: section_title: Five Professional and Management Support Services Codes Accounted for the Majority of Obligations
paragraphs: A significant portion of the growth in civilian agency contracts for  professional and management support services was driven by an  increase in obligations for contracts coded in FPDS-NG as Other  Professional Services. This category accounted for $3.4 billion of the $9.9  billion increase in contract obligations for professional and management  support services from fiscal year 2005 to fiscal year 2010. Overall, 5 of  the 56 codes for professional and management support services  accounted for 70 percent of civilian agency obligations for these services  in fiscal year 2010, representing over $22 billion in overall obligations.  (See fig. 3.)
Of the 230 contract SOWs we reviewed, 171 contracts were in the top  five codes and covered a wide range of services. For example:
Other Professional Services. SOWs requested support including risk  management and analysis, records management, assistance to a  foreign government, physical and administrative security, budget and  program management support, financial and information technology  audits, strategic planning, program administration, acquisition support,  project management, technical assistance and training, workforce  analysis, and website development and content management.
Engineering and Technical Services. SOWs requested services  including architectural planning and construction, testing and  evaluation of radar and weather systems, ship inspection services,  and information technology systems support.
Technical Assistance. SOWs requested services including support to  foreign governments, such as support for security and governance in  Nepal and local government capacity building in unstable areas of  Afghanistan, as well as contracts to update information technology  systems and manuals and provide technical and administrative  support to meet information technology security requirements.
Program Management/Support Services. SOWs requested services  including support to evaluate internal controls, manage audit  compliance and the tracking of audit recommendations, and provide  project management oversight to ensure grantee compliance in  administering federally funded programs.
Other Management Support Services. SOWs requested services  including technical and program expertise related to technologies’  compliance with federal laws and guidelines; support to develop a  program management plan for project monitoring and oversight;  information systems, hardware, and software support; technical  expertise to improve data collection and program evaluation; and loan  servicing activities including payment collection, risk management,  and customer service.
section_title: Officials Identified Various Reasons for Contracting for Services
paragraphs: We conducted a more in-depth review of 12 contracts or task orders for  professional and management support services. On the basis of our  review, at least 9 of the 12 contracts or task orders involved services that  closely support inherently governmental functions, including acquisition  support, reorganization and planning support, and support for policy  development. The selected contracts or task orders originated from 2005  through 2009 and included a mix of both long-standing and new contract  requirements. For example, the DOT project management oversight  contracts at the Federal Transit Administration include services that have  been performed by contractors for more than 20 years.
Contracting and program officials identified several reasons why their  agencies chose to award contracts for these professional and  management support services. Six of the 12 contracts or task orders were  issued or expanded in response to new requirements or workload  increases, such as the watch officer positions created to provide surge  capacity at DHS’ Transportation Security Administration, an expanded  Sudan mission support contract at USAID, and short-term need for  procurement office support at HUD. The 12 case-study contracts and task  orders are described in table 3.
Agency officials noted that the temporary nature of some work or the  need for surge capacities made contracting preferable to using federal  employees because of the flexibility it offers, such as the ability to  increase or decrease scope in response to program needs. Often, agency  officials pointed to constraints on the use of federal employees such as  limitations for hiring federal staff or budget restrictions as a factor that led  to contracting for services. For example, NSF provides support to two  interagency offices established by memorandums of understanding,  which program officials told us have the effect of limiting the number of  government personnel who can work in the offices, so the majority of the  work is performed by contractors. Similarly, a senior Federal Transit  Administration official said that while Congress has authorized a portion  of annual program funds to be used for oversight services, the  administration is constrained from using these funds to hire federal  employees for this purpose. In another case, officials from HUD’s  Government National Mortgage Association said that the agency  increasingly used contractors for data analysis related to mortgage- backed securities, in part because their hiring authority had not increased  in several years, so they did not have enough government staff to meet  their increased workload.
section_title: Agency Officials Generally Did Not Consider and Mitigate Risks Associated with Contracts for Professional and Management Support Services
paragraphs: Agency officials generally did not consider the risks of acquiring  professional and management support services before awarding the 12  contracts we reviewed. In some cases, however, officials later became  concerned and took steps to mitigate potential risks that contractors might  perform inherently governmental functions, or that government  employees might lack sufficient expertise to oversee the contractors’  work. Four of the five agencies did not have guidance to help identify  risks prior to award and ensure enhanced oversight is provided when  services closely support inherently governmental functions.
subsections: section_title: Few Officials Considered Risks When Awarding Contracts That Closely Support Inherently Governmental Functions
paragraphs: For the contracts we reviewed, few of the contracting or program officials  said they considered whether the services they were contracting for  closely supported inherently governmental functions or took steps to  address the related risks before award. In almost all of the cases, officials  explained that they conducted reviews, as required by the FAR, to  determine if the services requested included inherently governmental  functions, but none stated that these review processes specifically  determined whether services might closely support inherently  governmental functions and thus require enhanced management  oversight. The FAR guidance requiring enhanced management  oversight when contracting for services that closely support inherently  governmental functions is located in a different part of the FAR than that  on inherently governmental functions, and agencies did not seem to link  the two FAR sections, as none of the officials identified services that  closely support inherently governmental functions as triggering a need for  increased oversight.
section_title: Some Officials Raised Concerns during Contract Performance
paragraphs: During the performance period of the contract, contracting and program  officials said they relied on routine oversight procedures, such as  assigning COTRs, reviewing contractors’ work products, and reviewing  contractor invoices and status reports. In cases where officials did have  additional oversight measures in place, they did not link their actions to  concerns associated with risks from acquiring professional and  management support services. For example, the Federal Transit  Administration program office at DOT had developed standard oversight  procedures to address the contractors’ roles and responsibilities for  overseeing grant recipients, including their responsibilities for conducting  assessments of the grantees and providing recommendations to the  agency. While the procedures acknowledge the government’s decision- making role, they are an application of long-standing guidance that  officials said was created to ensure that each project meets its goals,  rather than additional oversight to address the risk of contractors  supporting inherently governmental functions. For other contracts,  contracting or program officials became concerned during the course of  contract performance that contractors were at risk of performing  inherently governmental functions, or that government personnel might  lack the expertise needed to oversee contractors’ work, and took various  steps to help mitigate those risks. In these cases, we found that concerns  were generally raised by officials who were new to a program office or  contracting officials who had assumed responsibilities for an existing  contract. For example:
A senior official in DOT’s Office of Airline Information became  concerned about the lack of government employee expertise to  oversee information technology functions that had been developed  and exclusively operated by contractors for several years. The office  is planning to convert some of the contractor duties to federal  employee positions, but efforts to hire new employees have not been  completed because of budget constraints and competing priorities  within the Research and Innovative Technology Administration.
The contracting officer and COTR in USAID’s Sudan Mission had  concerns about interaction among federal employees and contractor  staff in a newly established mission office, fearing that security and  logistic challenges had left the government overly reliant on  contractors’ expertise. To prevent the performance of inherently  governmental work by contractors and to ensure appropriate oversight  and capacity among the federal employee workforce, they developed  a mission order nearly 3 years after the contract was awarded that  outlined the government’s responsibilities and provided training for all  personnel in the mission office.  In the two NSF contracts we reviewed, contracting and program  officials developed policy and procedure manuals after the contracts  were awarded to outline the responsibilities and workflow among  contractor and federal staff. Officials said that because each of these  offices is staffed primarily by contractors, with only one or two federal  employees, these technical documents primarily serve a business  continuity function. However, officials also said they help to ensure  that contractors will not accidentally perform or be tasked with  inherently governmental work.  In two of the DHS contracts we reviewed, officials identified risks  associated with some of the activities performed by contractors and  are now requiring the work to be performed by government  employees. According to a senior procurement official with Citizenship  and Immigration Services, the component has reduced the number of  contractors supporting the contract from 90 to approximately 22,  primarily by insourcing work—moving it from contractor to government  performance—such as acquisition and budget support. The contract  positions that remain are largely administrative specialist positions  that officials determined do not support inherently governmental  functions. Likewise, the Transportation Security Administration  insourced 12 contracted watch officer support positions, which involve  collecting information and monitoring domestic events that affect air  passenger security, and program officials said they plan to insource  the remaining call center positions in the near future.
According to agency officials, at least 6 of the 12 contracts we reviewed  have been recently recompeted or will be in the coming year. Officials  identified various changes to the contracts going forward, but only a few  indicated that the changes were due to concerns with contractors  providing professional and management support services. For example,  USAID’s policy office is changing some of the types of work performed by  contractors in that office, but officials indicated that these changes are  determined by how contract support can most effectively help the office  function, not by consideration of risk or reliance on contractors. Similarly,  HUD’s Office of the Chief Procurement Officer ended its use of  contractors when it received additional funding for federal employees,  though program officials did not express any concerns about the type of  work done by those contractors. DOT’s Office of Airline Information is  rolling its current contract into a larger, administrationwide contract  vehicle for the sake of potential cost savings, not to address its concerns  about the type of work being performed. Although the DHS Office of  Intelligence and Analysis contract we reviewed expired, officials said that  the succeeding contract, which is classified, contains similar types of  services.
section_title: Four Agencies’ Guidance Did Not Address Risks Related to Professional and Management Support Services
paragraphs: Agencies use a variety of tools to guide procurement practices prior to  contract award and during contract performance, including agency- specific FAR supplements, acquisition manuals, and COTR handbooks,  and some of the materials we reviewed mention professional and  management support services. The FAR requires agencies to provide  enhanced management oversight for contracts that closely support  inherently governmental functions, and federal internal control standards  require assessments of risks. However, four of the five agencies reviewed  did not have processes, through guidance or other means, to help identify  risks or ensure greater scrutiny and enhanced management oversight  when contractors provide expertise or perform services that closely  support inherently governmental work.
In 2007, we recommended that DHS assess the risk of selected  contractor services as part of the acquisition planning process and modify  existing acquisition guidance to address when to use and how to oversee  those services in accordance with federal acquisition policy. DHS did  not have guidance when two of the three contracts we reviewed were  awarded, but it subsequently established a review process for all  professional and management support service contracts over $1 million to  identify related risks, including services that closely support inherently  governmental functions.awarded or option years are exercised. According to an official from one  of the three DHS components we reviewed, this process helped  contracting officials pay closer attention to oversight capacities of  government staff, such as whether there were a sufficient number of  employees available.
USAID’s institutional support contracts can include program support functions similar to  professional and management support services. USAID defines institutional support  contractor as a non-personal-services contractor, funded by USAID to support agency  operations or to augment the agency’s direct hire and personal services staff, or both.  Personnel employed by an Institutional Support Contractor may be seated within USAID  space, space rented by or on behalf of the agency, or in the Institutional Support  Contractor’s space. Institutional Support Contractors may be funded by either program or  operating expense. While the majority of these individuals provide administrative and  information technology support to the agency, some personnel employed by non- personal-services contractors in headquarters provide program-related support. performance. However, the guidance does not have a process for  providing enhanced management oversight for services that closely  support inherently governmental functions.
section_title: OMB Multisector Workforce Efforts Seek to Improve Agency Management of Professional and Management Support Service Contracts
paragraphs: Through several efforts that address agencies’ multisector workforce of  federal employees and contractor personnel, OMB addresses  professional and management support service risks, including recent  guidance that establishes agency management responsibilities for  services that closely support inherently governmental functions. The five  agencies we reviewed have responded to these efforts to varying  degrees, but only DHS has taken steps to incorporate all of these efforts.  In recent initiatives, OMB may have missed opportunities to address risks  associated with two specific codes for professional and management  support services.
subsections: section_title: Recent OMB Efforts Establish Guidance That Addresses Risks Associated with Service Contracts
paragraphs: OMB has initiated a number of interrelated efforts that address agencies’  use of service contractors, including contractors for professional and  management support services, in the context of maintaining a balanced  workforce with the appropriate mix of federal employees and contractors.  Primarily in response to congressional requirements, since 2009 OMB  has developed guidance and facilitated efforts to improve how agencies  manage their multisector workforce, which includes addressing the risks  that overreliance on contractors can pose to government control and  accountability. Through these efforts, Congress and OMB have  emphasized the need to examine contracted functions where agencies  risk becoming overreliant on contractors, such as professional and  management support service contracts. By focusing on the role that both  government and contractor employees have in performing work that  supports agency missions, these efforts emphasize the need to consider  how contracted functions fit into agency goals and priorities as part of  strategic planning processes. The resulting multisector workforce efforts  seek to broaden decisions about the use of contractors from primarily a  procurement office function, or a series of individual, program-office-level  decisions, to a shared agency responsibility that requires the involvement  of human capital, budget, and program, as well as procurement offices.  Recent efforts that address professional and management support  services are described in table 4.
OMB established criteria to help agencies respond to the statutory  requirement to develop a process for reviewing service contractor  activities to consider if contractor performance is appropriate, referred to  as insourcing guidance. OMB’s guidance identifies professional services  as an area of risk, thus requiring increased agency monitoring. In 2009,  OMB also required agencies to conduct multisector workforce planning  pilots in one office or unit to gain experience with determining optimal  workforce balance and submit summary reports on their workforce  analysis. More recently, in 2010, OMB issued guidance to help agencies  conduct inventories of their fiscal year 2010 service contracts and an  analysis of the inventory, which provides a more detailed list of  professional and management support service codes, including program  management support and intelligence services that require increased  attention from agencies. OMB stated that it will issue additional guidance  to agencies for the preparation of the fiscal year 2011 inventories, taking  into consideration experiences with the development and use of the initial  fiscal year 2010 inventories effort. The recent OMB OFPP Policy Letter  11-01 seeks to broaden agencies’ focus to include critical functions,  which can pose a risk if not carefully monitored. Similar to the risks  associated with contractors performing work that closely supports  inherently governmental functions, OMB states that relying on contractors  for critical functions can affect the government’s control of mission and  operations, unless the government maintains sufficient in-house capability  to manage and oversee the contractors’ work. The policy letter requires  agencies to develop and maintain internal procedures to address the  requirements of the guidance, but does not state when the procedures  should be implemented.
According to a senior OMB official, these pieces of guidance, working  together, are intended to build the different capacities agencies need to  examine their use of contractors and balance their workforce. For  example, the insourcing guidance helps agencies develop the procedures  needed to determine the appropriate use of public and private labor  resources. The workforce analysis pilots were intended, in part, to help  agencies build relationships among key stakeholders, furthering the  collaboration needed to implement strategic approaches. Similarly, the  contract inventories and analysis are ongoing efforts to collect and share  the information stakeholders need to understand their areas of greatest  risk. The official also said that the policy letter ties all of these efforts  together and provides agencies with instructions regarding their  responsibilities to address risks associated with contractors performing  services that closely support inherently governmental functions or are  considered critical functions.
section_title: Agencies Have Responded to Multisector Workforce Initiatives to Varying Degrees
paragraphs: The five agencies we reviewed have participated in many of OMB’s  efforts related to the multisector workforce, but only DHS has taken steps  to incorporate guidance to examine its use of contractors and balance its  workforce. The four remaining agencies we reviewed—DOT, HUD, NSF,  and USAID—are increasingly responding to the various segments of  OMB’s guidance by participating in the multisector workforce pilots and  developing an inventory of service contracts, but have not fully  implemented insourcing guidance that could provide greater scrutiny of  professional and management support service contracts. Through the  multisector workforce pilots, all five agencies we reviewed conducted a  limited workforce analysis to gain an understanding of the steps needed  to achieve a balanced workforce and submitted reports on the pilots to  OMB in April 2010. While OMB initially stated that a summary of agency  best practices would result from the pilot efforts, agencies have not yet  received feedback from OMB on their reports and results have not been  made public. The agencies we reviewed also completed their initial  service contract inventory, which is an annual requirement of all of the  civilian agencies subject to the FAIR Act of 1998 to understand how  contractors are being used and to help identify contracted functions that  may require workforce rebalancing due to overreliance on contractors. An  additional analysis of this inventory is due at the end of 2011. OMB is  planning to provide updated guidance to the agencies for the fiscal year  2011 inventory analysis, but it had not been issued as of November 2011.
As of August 2011, three agencies—DOT, HUD, and NSF—had not yet  developed the insourcing guidance that was due in 2009 for considering  whether government or contractor employees are best suited for certain  functions, particularly professional support services and services that  closely support inherently governmental functions or are similar to work  already performed by federal employees. USAID has developed  insourcing guidance, but is implementing it incrementally through its  operating units with the assistance of a workforce planning contractor.  According to USAID officials, the process has been piloted in two offices  to date. In its most recent guidance, OMB’s OFPP Policy Letter 11-01  reiterates a statutory requirement that agencies must give special  consideration to using federal employees to perform work that closely  supports inherently governmental functions.
DHS developed insourcing guidance in 2009, and later expanded its  efforts by introducing a strategy that provides a more comprehensive  review process to help program offices balance their use of contracted  and government personnel. The Balanced Workforce Strategy includes a  decision-making tool intended to help program offices and the department  assess various risks associated with service contracts, including whether  the service supports a critical agency function. Using the tool, DHS  program offices are systematically reviewing all of their existing service  contracts to determine, among other factors, whether the services  requested closely support inherently governmental functions, their degree  of criticality, and the appropriate number of government personnel  needed to maintain workforce balance. According to DHS officials, the  review is being conducted in segments and contracts considered to be at  higher-risk—including professional and management support service  contracts—were prioritized for the initial reviews.
The Balanced Workforce Strategy leverages the efforts of DHS reviews,  including the Quadrennial Homeland Security Review and Bottom-Up  Review completed in 2010. According to DHS officials, it is also in  response to congressional concerns about their use of contracted  services and our 2007 report on their use of professional and  management support services. However, DHS is also developing the  strategy to meet the various statutory and OMB requirements associated  with the multisector workforce, such as developing insourcing guidelines  as required in statute and identifying critical functions, as was outlined in  OMB’s OFPP Policy Letter 11-01. At the time of our review, DHS officials  said the strategy was moving forward, but they considered the guidance  to be a draft because it had been based on OMB’s notice of proposed  policy letter, and they were anticipating the final policy letter might require  changes to the DHS strategy.
section_title: OMB May Have Missed Opportunities to Address Cost Savings and Risk in Two Recent Initiatives
paragraphs: Two recent OMB efforts have highlighted a group of service codes for  increased attention as agencies address their use of service contracts,  but do not contain two codes—Other Professional Services and Other  Management Support Services—that accounted for a significant amount  of dollars obligated by civilian agencies on professional and management  support service contracts in fiscal year 2010 and may contain risks to the  government’s control of mission and operations. At a White House forum  in July 2011, OMB announced an effort to achieve cost savings by  reducing agencies’ spending on management support service contracts  by 15 percent by the end of fiscal year 2012. OMB later identified 12  service codes to define management support service functions, but did  not include these two codes, which together comprised 30 percent of  dollars obligated on professional and management support service  contracts in fiscal year 2010. The two codes were also not included in a  similar list of service codes provided in OMB’s November 2010 guidance  for conducting service contract inventories and analysis. In the  guidance, OMB states that agencies should give priority consideration to  reviewing contracts for professional and management support services  and provides the list to illustrate codes that should be considered in  agencies’ analysis.heightened management attention due to concerns of their increased risk   According to OMB, these codes were identified for  to the government’s control of mission and operations. See appendix IV  for a complete list of the service codes identified in both initiatives.
While OMB took steps to provide agencies with guidance on codes for  certain services that may have increased risks, our analysis of 230  contract SOWs, which included 83 contracts categorized as Other  Professional Services or Other Management Support Services, showed  that contracts in these codes include some of the same functions  identified in the inventory guidance as requiring heightened management  attention. (See table 5.) For example, requests for acquisition support  were included in contracts in the two codes at all five of the agencies we  reviewed. Additionally, because contracts in these codes can include a  wide range of functions, they may include multiple activities that  potentially support inherently governmental functions. For example, a  DHS contract coded Other Professional Services requested services  ranging from supporting program development and implementation,  policy, workforce analysis, statistical and financial analysis, and economic  analysis, to technical writing, web maintenance, mail and file operations,  training, and information technology support for various programs.
According to a senior OMB official, OMB kept its list of inventory service  codes concise to help agencies focus their attentions on a manageable  number of services. However, by omitting these codes from receiving  priority attention in agencies’ inventory analysis, particularly considering  that many of the services requested under these codes may closely  support inherently governmental functions, agencies may not conduct a  full analysis of risks related to loss of control and operations. While the  services specified in the inventory analysis list are intended to be  illustrative, the significant amount of obligations spent in the two excluded  codes also warrants attention, particularly for efforts aimed at reducing  spending for such services.
section_title: Conclusions
paragraphs: Long-standing OMB and FAR guidance has established the need for  federal agencies to consider risks associated with contractors providing  professional and management support services, particularly with services  that closely support inherently governmental functions. However, the five  agencies we reviewed generally did not consider these risks prior to  contract award. Additionally, only one of the five agencies had developed  guidance or practices over time to improve management of these risks.  Recent OMB efforts associated with the multisector workforce look to  increase agency focus on services acquired, not necessarily to reduce  the number of contractors, but to ensure agencies have sufficient  knowledge of the activities performed by contractors. The efforts  particularly focus on whether the government may be overly reliant on  contractors for certain functions and whether such reliance presents risks  to government control and accountability for decision making. OMB’s  most recent policy guidance, OFPP Policy Letter 11-01, requires  agencies to develop procedures to address these issues. Such  procedures are an important step toward improved agency consideration  of risks. However, OMB has not established a deadline for when agencies  need to complete these procedures, which, if established, may help better  focus agency efforts to address risks.
In the context of better managing the multisector workforce, there are  further opportunities to enhance the results of OMB’s efforts. Agencies  are required to conduct inventory analyses to help them understand the  extent to which contractors support their work. Under current OMB  inventory guidance, agencies have been asked to focus on a detailed list  of professional and management support service codes, but not two  codes that account for one-third of fiscal year 2010 obligations under this  services category. According to our analysis, these codes contain the  same risks to mission and operation that OMB is intending to address.  The same two codes are also not cited in OMB’s more recent effort to  reduce agency spending for management support service contracts.
section_title: Recommendations for Executive Action
paragraphs: To address these issues, we are making two recommendations to the  Director of OMB. To better focus agencies’ efforts to manage the risks  related to professional and management support service contracts we  recommend that the Director of OMB, through the Office of Federal  Procurement Policy establish a near-term deadline for agencies to develop internal  procedures required by OFPP Policy Letter 11-01, including for  services that closely support inherently governmental functions.
To ensure that the risks of professional and management support service  contracts are more fully considered and addressed, we recommend that  the Director of OMB, through the Office of Federal Procurement Policy  include contracts coded in the Federal Procurement Data System –  Next Generation (FPDS-NG) as Other Professional Services and  Other Management Support Services in the cost savings initiative for  management support services and planned service contract inventory  guidance to agencies for conducting analysis of special interest  functions.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to OMB, DHS, DOT, HUD, USAID, and  NSF for review and comment. DHS provided a written response stating  that it is committed to ensuring risks related to professional and  management support service contracts are mitigated (see app. V) and  technical comments that were incorporated into the report as appropriate.  DOT, HUD, and NSF also provided technical comments that were  incorporated into the report as appropriate.  USAID responded that it did  not have comments.
OMB’s Office of Federal Procurement Policy (OFPP) provided comments  by e-mail on this report. OFPP generally agreed with our findings and  recommendations, but provided technical comments on our  recommendations. For our first recommendation, OFPP commented that  the OFPP Policy Letter 11-01 addresses multiple management  responsibilities related to professional and management support service  contracts and it would likely establish agency time frames for agencies to  develop the required internal procedures more broadly, not just for  services that closely support inherently governmental functions. In  recognition of the interrelatedness of the critical functions that may be  performed by contractors, including those that closely support inherently  governmental functions, we modified the recommendation to reflect the  broader scope of OMB’s policy letter.
For our second recommendation, OFPP commented that it would  consider addressing contracts coded in FPDS-NG as Other Professional  Services and Other Management Support Services in the planned service  contract inventory guidance to agencies, but expressed concerns with  including these contracts under its current cost savings initiative for  management support services contracts. OFPP noted that the initiative is  focused on this fiscal year’s spending and that changing the baseline  several months into the fiscal year would create confusion at the  agencies. OFPP stated that it viewed having clear and consistent  baselines as consistent with our recommendations on OMB’s fiscal year  2010 contracts savings initiative and that it could consider expanding the  list of codes for a future service contract cost savings initiative. As our  analysis has shown, Other Professional Services and Other Management  Support Services accounted for a significant amount of dollars obligated  by civilian agencies on professional and management support services  contracts in fiscal year 2010 and may contain risks to the government’s  control of mission operations. Including them in the planned service  contract inventory guidance to civilian agencies will be a good step in  expanding the agencies’ focus on the use of contractors. In recognition  that agencies may have already started to respond to the cost savings  initiative for this fiscal year, we modified the recommendation to provide  OMB some flexibility for including these codes under the cost savings  initiative in the subsequent years.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees and the Director of OMB, the Secretaries of  DHS, DOT, and HUD, and the Administrators of USAID and NSF. In  addition, the report will be available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have questions about this report or need additional  information, please contact me at (202) 512-4841 or huttonj@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this report. Other staff making  key contributions to this report are listed in appendix VI.
section_title: Appendix I: Scope and Methodology
paragraphs: To conduct this work, we analyzed contract data from the Federal  Procurement Data System – Next Generation (FPDS-NG) and selected  and reviewed 230 contract statements of work (SOW) for professional  and management support services, from which we selected 12 contracts  and task orders for more in-depth case-study reviews. To assess the  reliability of FPDS-NG data fields used in our analysis, we confirmed  through the SOWs that selected contracts and task orders were correctly  categorized as professional and management support services. We  determined that the data were sufficiently reliable for overall trend  analysis of these services. We also reviewed agency and  governmentwide guidance and spoke with agency and Office of  Management and Budget (OMB) officials.
To determine the extent to which civilian agencies contract for  professional and management services, we compiled information from  FPDS-NG on procurement spending at civilian agencies for fiscal years  2005 through 2010. For the purposes of this report, contracts described  as professional and management support services are contracts  categorized as “Professional, Administrative and Management Support  Services” in the Federal Procurement Data System Product and Service  Codes Manual. To gain greater insight into the types of activities included  in contracts under these codes, we judgmentally selected five civilian  agencies, the Departments of Homeland Security (DHS), Transportation  (DOT), and Housing and Urban Development (HUD), the U.S. Agency for  International Development (USAID), and the National Science Foundation  (NSF), based in part on their obligations for professional and  management support services in fiscal year 2009 as a proportion of  overall service obligations, as well as to represent varying agency  missions and amounts of service contract obligations. Using the same  criteria, we selected three components each at DHS and DOT, as these  two agencies had FPDS-NG data available at these levels. The DHS  components are the Office of the Secretary, the Transportation Security  Administration, and U.S. Citizenship and Immigration Services. At DOT,  we selected the Office of the Secretary of Transportation, the Federal  Aviation Administration, and the Federal Transit Administration.
From these agencies, we reviewed FPDS-NG data on obligations in fiscal  year 2009, which at the time was the most recent full year data available,  to select professional and management support service contracts and  task orders for further review. To focus our analysis, we obtained FPDS- NG data on contract obligations from 20 specific service codes for  professional and management services, which included codes identified  in prior GAO work and services listed in OMB’s inventories guidance as  requiring heightened management attention. We also included service  codes that were frequently used by the five agencies and that might relate  to specific agency missions. See table 6 for a list of service codes  considered.
From the contract obligations included under the selected codes, we  judgmentally selected a nongeneralizable sample of 235 contracts and  task orders to cover a range of services and obligation amounts. We also  included contracts and task orders with descriptions, when available, that  indicated the requested services closely supported inherently  governmental functions or could be considered functions close to  agencies’ missions. We requested 50 contract and task order SOWs each  from DHS, DOT, USAID, and HUD. We requested 35 SOWs from NSF,  which had a smaller number of contracts and task orders from which to  select in these codes. Of the 235 contracts and task orders requested  across the five agencies, five SOWs were either not available from the  agencies during the course of our audit work or not sufficiently detailed for  our review purposes.
We reviewed the SOWs from the 230 contracts and task orders provided  and compared the services requested to the descriptions of services that  closely support the performance of inherently governmental functions that  are available in federal acquisition guidance. After conducting an initial  SOW review for all of the categories describing services that closely  support inherently governmental functions, we judgmentally identified 10  of the categories for more detailed review, including 4 categories that we  addressed collectively as acquisition support. (See table 7.) These  categories were primarily selected because their descriptions available in  federal acquisition regulations allowed for a more definitive determination  of services supporting inherently governmental functions, based on the  descriptions available in the SOWs.
To determine if agency officials consider and mitigate risks associated  with using contracts for selected professional and management support  services, we reviewed available agency guidance and conducted a  detailed review of 12 contracts or task orders as case studies. From the  230 SOWs reviewed, we judgmentally selected the 12 contracts or task  orders to provide a range of obligation amounts and service codes, and to  include cases in which the services requested might closely support  inherently governmental functions, or represent contracting activity that  might be typical or indicative of types of work contracted by that agency.  We selected three contracts or task orders each from DHS and DOT, one  from each of the selected components, and two contracts or task orders  from each of the three remaining agencies. For each case study, we  reviewed contract documentation, including available acquisition plans,  oversight plans, and records, and interviewed contracting and program  officials about the decision to use contractors and contractor oversight,  including any processes and guidance used and the extent to which they  considered potential risks. To review agency guidance and practices, we  interviewed agency officials, including procurement, management, and  human capital offices, to help identify available guidance. We requested  and reviewed agency-level guidance documents, including FAR  supplements and acquisition manuals, to identify guidance that addresses  risks associated with professional and management support services  contracting. We also requested and reviewed available guidance from the  component organizations we reviewed in DHS and DOT.
To assess agency responses to OMB efforts to address professional and  management support services, we met with officials from the Office of  Federal Procurement Policy and reviewed statutes and OMB documents,  memos and policy letters that address the multisector workforce, as well  as contracting for professional and management support services. We  interviewed agency procurement and human capital officials about  actions taken to respond to OMB’s efforts and reviewed available  documentation.
section_title: Appendix II: Examples of Inherently Governmental and Closely Supporting Inherently Governmental Functions and Associated Special Acquisition Requirements
paragraphs: The Federal Acquisition Regulation (FAR) section 7.503 provides  examples of inherently governmental functions and services or actions  that are not inherently governmental but may approach being inherently  governmental functions based on the nature of the function, the manner  in which the contractor performs the contract, or the manner in which the  government administers contractor performance. These examples are  listed in tables 8 and 9, respectively.
Additionally, FAR section 37.114 requires agencies to provide special  management attention to contracts for services that require the contractor  to provide advice, opinions, recommendations, ideas, reports, analyses,  or other work products, as they have the potential for influencing the  authority, accountability, and responsibilities of government officials. It  directs agencies to take steps to ensure these contracts do not result in  performance of inherently governmental functions by the contractor and  that government officials properly exercise their authority. Table 10 lists  the steps agencies must take.
section_title: Appendix III: Service Codes for Professional and Management Support Services
paragraphs: Executive departments and agencies are responsible for collecting and  reporting data to the Federal Procurement Data System – Next  Generation (FPDS-NG). Contracting officers must submit data to FPDS- NG, including selecting a product or service code from the product  service code field to describe the items or services requested by the  contract. If more than one code is applicable, officials must report the  code that describes the predominance of dollars obligated for the  contract. Table 11 lists the codes for Professional and Management  Support Services as defined in the Federal Procurement Data System  Product and Service Codes Manual, both the August 1998 edition that  was in effect at the time of our review and the August 2011 edition that  became effective October 1, 2011.
section_title: Appendix IV: List of Services Requiring Special Consideration in OMB Inventory Guidance and Services Identified in OMB Cost Savings Initiative
paragraphs: In November 2010, the Office of Management and Budget (OMB) issued  an Office of Federal Procurement Policy (OFPP) memo with guidance to  help agencies conduct a required service contract inventory for fiscal year  2010. According to the guidance, the insight obtained from conducting  the inventories is especially important for contracts whose performance  may involve critical functions or functions closely associated with  inherently governmental functions, as may be the case, for example, with  contracts for various professional, administrative and management  services falling within “Code R” of the Federal Procurement Data System  Product and Services Codes Manual. The guidance further states that  agencies should conduct an analysis of their inventories, giving priority  consideration to functions that require increased management attention  due to heightened risk of workforce imbalance. It provided an illustrative  list of functions and their service code identified by OMB for heightened  management consideration, based on concerns of increased risk of losing  control of mission and operations as identified through a review of reports  issued in recent years.
In July 2011, OMB announced a cost savings initiative focused on agency  contracts for management support services. Agencies were directed to  reduce their spending on such services by 15 percent by the end of fiscal  year 2012. In November 2011, OMB issued guidance identifying 12  service codes that describe management support services. Table 12  shows the list of service codes from both initiatives.
section_title: Appendix V: Comments from Department of Homeland Security
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Katherine Trimble, Assistant  Director; Jennifer Dougherty; Jacques Arsenault; Robert Campbell; Kristin  Van Wychen; Sarah Viranda; Laura Greifner; Julia Kennon; Sylvia  Schatz; and Kenneth Patton made key contributions to this report.