Defense Workforce: DOD Needs to Better Oversee In-sourcing Data and Align In-sourcing Efforts with Strategic Workforce Plans
Released: 2012-02-09T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: The Department of Defense (DOD) relies on contractors for varied functions, and obligated about $200 billion in fiscal year 2010 for contracted services. In-sourcing—moving contracted work to performance by DOD employees—has been one tool through which DOD managed its workforce. The National Defense Authorization Act for Fiscal Year 2011 required DOD to report on its fiscal year 2010 in-sourcing decisions and required GAO to assess DOD’s report. The act required DOD to report, for each decision, the agency or service involved, the basis and rationale for the decision, and the number of contractor employees in-sourced. GAO assessed the report against these requirements and examined how DOD prepared the report and assured itself of the data’s reliability, and the extent the in-sourcing actions were aligned with DOD’s strategic workforce plans. GAO reviewed the in-sourcing report, examined in-sourcing guidance, reviewed DOD’s recent strategic workforce plans, and interviewed appropriate department officials.

section_title: What GAO Found
paragraphs: DOD reported on two of three issues required by law: the component involved with each of its fiscal year 2010 in-sourcing actions and the rationale for each action. However, DOD did not report the number of contractor employees whose functions were in-sourced, because, DOD officials said, the department does not have these data. Specifically, the department noted, in its report to Congress, that it contracts for services and does not hire individual contractor employees. Instead, DOD reported the number of new civilian authorizations created due to in-sourcing. Congress has separately required DOD to report the number of contractor employees performing services for DOD, expressed as full-time equivalents, as part of its inventory of activities performed under contracts for services. In its in-sourcing report, DOD said that efforts to comply with this additional requirement may in the future help inform the number of contractor full-time equivalents in-sourced.

The Office of the Under Secretary of Defense for Personnel and Readiness (OUSD (P&R)) requested information from DOD components on fiscal year 2010 in-sourcing actions to produce its report, and the military departments and OUSD (P&R) took varying, and in some instances limited, approaches to ensuring the data’s reliability. Additionally, some of the commands GAO contacted made errors in reporting in-sourcing data. For example, 348 of 354 new in-sourcing authorizations by the Navy’s Fleet Forces Command were categorized as inherently governmental when they should have been categorized as exempt from private sector performance for continuity of infrastructure operations. Federal internal control standards state that data verification helps provide management with reasonable assurance of achieving agency objectives, including compliance with laws. Without accurate data, decision-makers in DOD and Congress may not have reliable information to help manage and oversee DOD in-sourcing.

While the mandate did not require the in-sourcing report to align with DOD’s strategic workforce plans, it was unclear to what extent the in-sourcing actions aligned with DOD’s plan due to differences in the types of data used in the in-sourcing report and the most recent workforce plan, and the absence of metrics to measure the in-sourcing goal established in the plan. DOD took some steps toward aligning these efforts, such as establishing a goal for in-sourcing in its most recent strategic workforce plan, which was issued in March 2010. Additionally, OUSD (P&R) officials said that the in-sourcing actions furthered DOD’s strategic workforce objectives, but acknowledged they had not established metrics to measure against the in-sourcing goal—which was to, among other things, optimize the department’s workforce mix to maintain readiness and operational capability and ensure inherently governmental positions were performed by government employees. Additionally, the strategic workforce plans coded jobs by occupational series, such as budget analyst, while the in-sourcing report used function codes indicating broad areas of work, such as logistics. DOD officials told GAO there is no crosswalk between the two. GAO has previously reported that strategic workforce planning includes aligning human capital programs with programmatic goals. Without metrics and due to the differences in the data used, DOD and Congress may have limited insight on the extent to which in-sourcing actions met strategic workforce goals.

section_title: What GAO Recommends
paragraphs: GAO recommends that, for future in-sourcing actions, DOD (1) issue guidance to components on verifying in-sourcing data, and (2) better align in-sourcing data with strategic workforce plans and establish metrics to measure progress against in-sourcing goals. DOD partially concurred with the recommendations, but noted that the challenges identified in GAO’s report are not unique to in-sourcing. GAO agrees, but believes actions are necessary to improve oversight of DOD’s in-sourcing.

section_title: Letter
paragraphs: The Department of Defense (DOD) relies on contractors to perform  functions as varied as professional and management support, information  technology support, and weapon system and intelligence support, and in  fiscal year 2010, DOD obligated about $200 billion for contracted  services. Contracting for services can offer benefits and flexibility to DOD,  but our prior work has also shown that reliance on contractors to support  core missions can place the government at risk of transferring  governmental responsibilities to contractors. Further, we have previously  reported that having the right number of civilian personnel with the right  skills is critical to achieving DOD’s mission. In-sourcing—moving work  performed by contractors to performance by DOD employees—is one  tool through which DOD can manage its total force (which includes DOD  civilians, active and reserve military personnel, and contractors) and help  ensure it has the necessary capabilities in its DOD civilian workforce to  perform key functions and reduce the risk of over-reliance on its  contractor workforce. Managing the total force through strategic workforce  planning helps organizations such as DOD determine if they have the  appropriate total workforce balance with the necessary skills and  competencies to achieve their strategic goals.

In April 2009, the Secretary of Defense announced his intent to reduce  the department’s reliance on contractors through in-sourcing, stating that  the department’s goal was to hire as many as 13,000 new civil servants in  fiscal year 2010 to replace contractors and up to 30,000 new civil  servants in place of contractors over a 5-year period.

The National Defense Authorization Act for Fiscal Year 2011 (FY11  NDAA) required DOD to report to the congressional defense committees  not later than March 31, 2011, on its fiscal year 2010 in-sourcing  decisions. Specifically, the act required the department to report, for  each in-sourcing decision, (1) the agency or service of the department  involved in the decision, (2) the basis and rationale for the decision, and  (3) the number of contractor employees whose functions were converted  to performance by DOD civilian employees. DOD submitted its report to  the congressional armed services committees on September 7, 2011, and  DOD officials told us the department submitted the report to the  congressional appropriations committees on either September 7 or 8,  2011.

The act also required that we assess DOD’s report within 120 days of the  report’s issuance. reported on its fiscal year 2010 in-sourcing decisions as required by the  act. On the basis of congressional interest, we also address how DOD  prepared its report on fiscal year 2010 in-sourcing decisions and the  extent to which it assured itself of the data’s reliability, and the extent to  which DOD’s fiscal year 2010 in-sourcing decisions were aligned with the  department’s recent strategic workforce plans.

Pub. L. No. 111-383 § 323(c) (2) (2011). military departments because together they constituted the majority of in- sourcing actions in fiscal year 2010. For the purposes of this review, we  selected a non-probability sample of commands from each military  service, which included at a minimum the largest two commands in each  service by volume of in-sourcing actions in fiscal year 2010. The sample  of commands is not generalizable to all military department major  commands.

To determine the process DOD used to prepare the report and the extent  to which the Office of the Secretary of Defense (OSD) and the military  departments assured themselves of the reliability of the data, we  reviewed our prior work on standards for internal control in the federal  government. We also reviewed DOD-issued guidance on the in-sourcing  process, and met with officials in OUSD (P&R) responsible for preparing  the report, as well as representatives of each of the three military  departments responsible for compiling data for the report. We analyzed  the data contained in the report to identify patterns in the in-sourcing  actions of the military departments, and met with representatives of each  military department and the selected major commands to identify the  reasons for those patterns. We used these data to portray the distribution  of in-sourcing actions across the military departments and other DOD  agencies, as well as the distribution of in-sourcing rationales in the  military services and within certain major commands. Although we found  issues with some of the command-level data, such as some erroneously  reported in-sourcing rationales, and are making a recommendation to this  effect, we found the data to be sufficiently reliable for the purposes of  providing broad percentages about in-sourcing actions.

To determine the extent to which DOD’s fiscal year 2010 in-sourcing  decisions were aligned with the department’s recent strategic workforce  plans, we reviewed DOD guidance on in-sourcing implementation and our  prior work on strategic workforce planning, as well as Office of Personnel  Management standards for assessing human capital planning. In addition,  we compared information reflecting DOD’s fiscal year 2010 in-sourcing  decisions with its fiscal year 2009 update to its 2006-2010 strategic  workforce plans.responsible for preparing both the in-sourcing report and the strategic  workforce plans, as well as officials in the Office of the Under Secretary of  Defense for Acquisition, Technology, and Logistics’ Office of Human  Capital Initiatives, to determine what steps were taken to align in-sourcing  efforts with strategic workforce plans.

We also interviewed officials in OUSD (P&R)

We conducted this performance audit from May 2011 to February 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives. We discuss our scope and  methodology in more detail in appendix I.
subsections: section_title: Background
paragraphs: Beginning with the National Defense Authorization Act for Fiscal Year  2006, Congress required the Secretary of Defense to issue guidelines  requiring DOD to consider using federal employees to perform work that  was currently being performed or would otherwise be performed under  DOD contracts. Under the guidelines, special consideration was given to  contracts that had been performed by federal government employees on  or after October 1, 1980, were associated with the performance of  inherently governmental functions, had not been awarded on a  competitive basis, or were determined to be poorly performed due to  excessive costs or inferior quality.

The National Defense Authorization Act for Fiscal Year 2008 codified at  section 2463 of title 10 of the United States Code (U.S. Code) revised the  guidelines and procedures for use of civilian employees to perform DOD  functions. This section directed the Under Secretary of Defense for  Personnel and Readiness (P&R) to devise and implement guidelines and  procedures to ensure that consideration was given to using, on a regular  basis, DOD civilian employees to perform new functions. In addition, the  guidelines and procedures were to ensure that functions that were  performed by contractors and could be performed by DOD civilian  employees were given the same consideration. Congress also directed  that the guidelines and procedures may not include any specific limitation  or restriction on the number of functions or activities that may be  converted to performance by DOD civilian employees. The act further  provided that DOD may not conduct a public-private competition prior to  in-sourcing such functions. The act also added a new section describing  the functions that were to receive special consideration from DOD when  considering the use of DOD civilian employees. Additionally, the act  required special consideration be given to a new requirement that is  similar to a function previously performed by DOD civilian employees or is  a function closely associated with the performance of an inherently  governmental function.

Pub. L. No. 110-181, § 807 (2008). performance of the activity. The National Defense Authorization Act for  Fiscal Year 2011 again amended section 2330a of title 10 of the U.S.  Code. Among other things the act now requires DOD to report the  number of contractor employees, expressed as full-time equivalents for  direct labor, using direct labor hours and associated cost data collected  from contractors (except that estimates may be used where such data is  not available and cannot reasonably be made available in a timely  manner for the purpose of the inventory).

Section 2330a (e) of title 10 of the U.S. Code requires each Secretary of  a military department or head of a defense agency to review this annual  inventory for several purposes, one of which is to identify activities that  should be considered for conversion to performance by DOD civilian  employees pursuant to section 2463 of title 10 of the U.S. Code. In turn  section 2463 requires the Secretary of Defense to make use of the 2330a  inventory for the purpose of identifying functions that should be  considered for performance by DOD civilian employees.

Under DOD’s policy for determining the appropriate mix of military and  DOD civilians and contractor support, risk mitigation shall take  precedence over cost savings when necessary to maintain appropriate  control of government operations and missions. This policy provides  manpower mix criteria for assessing which functions warrant performance  by military or civilian personnel due to their associated risks, and which  functions will therefore be considered exempt from performance by  contractor support. DOD issued in-sourcing guidance in April 2008 and  again in May 2009 to assist components in implementing these legislative   According to the May 2009 guidance, DOD components  requirements.should first confirm that a particular mission requirement is still valid and  enduring; that is, that DOD will have a continued need for the service  being performed. If the requirement is still valid, the component should  consider in-sourcing the function. If the component determined that the  function under review was inherently governmental or exempt from  private sector performance no cost analysis was required. Possible  rationales to in-source include the following, according to the May 2009  in-sourcing guidance:

The function is inherently governmental; that is, the function is so  closely related to the public interest as to require performance by  government employees.

The function is exempt from private sector performance to support the  readiness or workforce management needs of DOD. According to  DOD’s policy for determining the appropriate mix of military, DOD  civilians, and contractor support, a function could be exempt from  private sector performance for a variety of reasons, including  functions exempt for career progression reasons, continuity of  infrastructure operations, and mitigation of operational risk.

The contract is for unauthorized personal services. Special  authorization is required for DOD to engage in personal services  contracts, which create a direct employer/employee relationship  between the government and the contractor’s personnel.

There are problems with contract administration due to a lack of  sufficiently trained and experienced officials available to manage and  oversee the contract.

Other than in-sourcing, OUSD (P&R) officials told us that DOD may be  able to address the above circumstances by, among other approaches,  restructuring the contract or changing the way the contract is overseen.  DOD’s guidance does not require components to prepare cost estimates  when they cite one of the above reasons as the basis for their in-sourcing  decision.

In situations in which none of the factors cited above are applicable,  DOD’s guidance instructs components to provide “special consideration”  as discussed above, and if DOD civilians could perform the work, conduct  a cost analysis to determine whether DOD civilians were the lowest-cost  provider. According to a December 2009 in-sourcing plan submitted to  Congress, DOD based this requirement on section 129a of title 10 of the  U.S. Code, which requires DOD to determine the least costly personnel  consistent with military requirements and other needs of the  department. Thus, DOD components may also in-source for cost  reasons when the work could otherwise be performed by a private  contractor.

DOD stated in its fiscal year 2010 budget submission to Congress that it  expected to save $900 million in fiscal year 2010 from in-sourcing. To  support the in-sourcing initiative, in April 2009 the Office of the Under  Secretary of Defense (Comptroller) issued a budget decision which  decreased funding for support service contracts and increased funding for  new civilian authorizations across DOD components. In December 2009, DOD issued a report to Congress on its planned fiscal year 2010  in-sourcing efforts, stating that after component reviews, the department  planned to create as many as 17,000 new civilian authorizations as a  result of in-sourcing in fiscal year 2010.

In August 2010, the Secretary of Defense stated that he was not satisfied  with the department’s progress in reducing over-reliance on contractors.  Representatives of OUSD (P&R) and the Office of the Under Secretary of  Defense (Comptroller) told us that although DOD avoided $900 million in  costs for contracted support services in fiscal year 2010 due to the budget  decision to reduce funds associated with in-sourcing, total spending  across all categories of service contracts increased in fiscal year 2010 by  about $4.1 billion. To accelerate the process and achieve additional  savings, the Secretary directed a 3-year reduction in funding for service  support contracts categorized by DOD as contracted support services. He  also directed a 3-year freeze on the level of DOD civilian authorizations at  OSD, the defense agencies, and the Combatant Commands, and stated  that with regard to in-sourcing, no more DOD civilian authorizations would  be created after the then-current fiscal year to replace contractors. He  also noted that some exceptions could be made for critical areas such as  the acquisition workforce. Further, the statutory requirement to regularly  consider in-sourcing contracted services remains in effect, and DOD  officials told us that, accordingly, in-sourcing continues in the department,  though on a more limited basis. See figure 1 for a timeline of key events  related to DOD in-sourcing.

Additionally, section 115b of title 10 of the U.S. Code requires DOD to  annually submit to the defense committees a strategic workforce plan to  shape and improve its civilian workforce. Among other requirements, the  plan is to include an assessment of the appropriate mix of military,  civilian, and contractor personnel capabilities. OUSD (P&R) is responsible  for developing and implementing the strategic plan in consultation with  the Office of the Under Secretary of Defense for Acquisition, Technology,  and Logistics. Since 2001, we have listed federal human capital  management, of which strategic workforce planning is a key part, as a  governmentwide high-risk area. Similarly, we have identified challenges  with having a sufficient number of adequately trained acquisition and  contract oversight personnel as a factor in continuing to identify DOD  contract management as a DOD-specific high-risk area.

section_title: DOD’s September 2011 In-sourcing Report Addressed Two of the Three Mandated Requirements
paragraphs: DOD’s September 2011 in-sourcing report addressed the legislative  requirements to report the service or agency involved with each of its  fiscal year 2010 in-sourcing actions and the rationale for each action, but  did not report the number of contractor employees whose functions were  in-sourced, as specified in the act. DOD stated that it could not report the  number of contractor employees because it contracts for services, rather  than hiring contractor employees directly. An OUSD (P&R) official noted  that one of the data elements Congress has required DOD to include in  its annual inventories of contracted services is the number of contractor  employees, expressed as full-time equivalents, that performed each  activity, and DOD is in the process of implementing a revised approach  to collect these data directly from contractors.
subsections: section_title: Service or Agency Information
paragraphs: DOD’s report identified nearly 17,000 newly created civilian  authorizations as a result of in-sourcing actions in fiscal year 2010, and  for each of these new authorizations, the department identified the DOD  component involved with the decision. For example, DOD reported that  42 percent of the new authorizations were established in the Army;         28 percent in the Air Force; 16 percent in the Department of the Navy  (including the Marine Corps); and 14 percent in other DOD agencies.  The report also in many cases identified the major command,  suborganization, or directorate of each DOD component that made the in- sourcing decision. For example, the Air Force identified whether Air  Combat Command, U.S. Air Forces Europe, or another agency within the  Air Force made the decision. See figure 2 for the overall distribution of  DOD’s fiscal year 2010 in-sourcing actions across its components.

The report also provided information on the rationale for each in-sourcing  action across DOD. According to DOD, half of the actions were based on  a determination that the function would be more cost effective if  performed by DOD civilian employees. While section 323 of the FY11  NDAA did not require DOD to report cost data on in-sourcing, DOD  issued guidance in January 2010 on cost estimating methodology for  cost-based in-sourcing decisions and the military departments collected  and reported some cost estimate data to OUSD (P&R). See appendix II  for information on DOD’s guidance on estimating in-sourcing costs and  collection of cost estimate data.

Additionally, DOD indicated in its September 2011 in-sourcing report to  Congress that about 41 percent of the new authorizations would perform  functions DOD determined to be exempt from private sector performance,  such as those necessary for career progression reasons, continuity of  infrastructure operations, or risk mitigation (which included oversight and  control of functions that are closely associated with inherently  governmental functions). Lastly, DOD reported that about 9 percent of the  new authorizations were created to perform work that was determined to  be inherently governmental (see fig. 3).

Our analysis of the data contained in the DOD in-sourcing report showed  that the military services differed in the rationales they cited as the basis  for their in-sourcing actions. For example, 86 percent of the Army’s new  authorizations (5,969 of 6,953) resulting from in-sourcing were deemed  exempt from private sector performance in order to reduce the risks  associated with contractors performing particular functions that were  closely associated with inherently governmental functions. In contrast, 95  percent of the Air Force’s new in-sourcing authorizations (4,495 of 4,732)  were cost-based and 100 percent of the new Marine Corps authorizations  (all 1,042) were cost-based. While the Navy reported that the basis for its  fiscal year 2010 in-sourcing actions varied (26 percent or 441 cost-based,  31 percent or 529 inherently governmental, and 43 percent or 716 exempt  from private sector performance, out of a total of 1,686), each of the  Navy’s largest major commands by volume of in-sourcing actions tended  to vary as well, with each command citing primarily one basis for its in- sourcing actions which differed among commands. For example, Naval  Sea Systems Command reported that its in-sourcing actions largely  involved functions considered exempt from private sector performance for  career progression reasons, while Pacific Fleet Command in-sourced 223  out of 224 positions for cost reasons. See figure 4 for the distribution of  the reasons cited for in-sourcing for each military service.

OUSD (P&R) and military service officials told us these differences reflect  the specific missions and functions of commands and differences in the  emphases of military services in the in-sourcing process. For example,  Army officials told us that the Army chose to in-source a large number of  functions which were closely associated with inherently governmental  functions to reduce risk associated with having contractors perform that  work. By contrast, Air Force officials told us that they gave “special  consideration” to in-sourcing functions closely associated with inherently  governmental, however, because the Air Force had sufficient in-house  capability in place to oversee the contracted work and could continue  contracting for those functions, the Air Force performed costs estimates  and in-sourced these functions for cost reasons. Under DOD’s  implementation of section 2463 of title 10 of the U.S. Code, even though  a function is identified as closely associated with inherently governmental,  unless that function meets DOD’s exempt criteria, the function may only  be in-sourced if a cost savings will result.

Furthermore, our work found that differences in the reasons cited for the  in-sourcing actions were, in part, due to actions by the military services  and major commands to focus their efforts on different objectives when  identifying contracts for possible in-sourcing. For example, Air Force and  Marine Corps command officials we met with indicated that their objective  was to realize cost savings from in-sourcing in order to live within the  budget reductions associated with the DOD Comptroller’s April 2009  budget decision, which cut funds from contracted services and placed a  portion of those funds in civilian authorizations accounts. By contrast,  officials of Naval Sea Systems Command told us they pursued an in- sourcing process based on an analysis the command had performed of  weaknesses in its internal capabilities and over-reliance on contactors,  and this resulted in categorizing the command’s in-sourcing actions as  exempt from private sector performance for career progression reasons.  Similarly, at one Army command, officials we met with in-sourced mainly  due to a statutory requirement that security guards on military bases be  government civilians.

DOD’s in-sourcing report further noted that in-sourcing has been an  effective tool for the department to rebalance its workforce, realign  inherently governmental and other critical work to government  performance, and in many cases, generate resource efficiencies for  higher priority goals.

section_title: DOD Did Not Provide the Number of Contractor Employees Whose Functions Were In-sourced
paragraphs: DOD’s in-sourcing report did not provide the number of contractor  employees whose functions were in-sourced as required, stating that the  department did not report this information because the department does  not directly employ or hire individual contractor employees. DOD further  stated that the department contracts for services to be performed, so the  number of employees used to perform these services is not a decision of  the department but is at the discretion of the contractor. The report also  stated that the department’s in-sourcing actions are focused on services  and not individual contractor positions or employees.

OUSD (P&R) officials told us that DOD focuses on contracting for  services rather than the number of contractor employees providing these  services. OUSD (P&R) officials further noted that the department does  not currently have complete information on the number of full-time  equivalents of contractor employees providing services to the department.  We recognize that the manner in which the service will be performed  under the contract is often a decision of the contractor. However, the level  of contractor personnel required to perform each activity is a key  component of total workforce management. As previously noted, section  2330a of title 10 of the U.S. Code requires DOD to submit to Congress an  annual inventory of all activities performed pursuant to contracts for  services and data associated with each activity to include the number of  contractor employees, expressed as full-time equivalents, based on the  number of direct labor hours and associated cost data collected from  contractors, paid for performance of the contracted services. Our prior  work has found that DOD faces limitations in obtaining or estimating this  information. For example, we found that the federal government’s  primary data system for tracking information on contracting actions does  not provide all the data elements required for the inventory of contracted  services. Though DOD has submitted four annual inventories to  Congress, as noted in our prior work, with the exception of the Army’s  inventory data, the information in the DOD inventories is largely derived  from databases that do not collect the information required by section  2330a of title 10 of the U.S. Code. In its September 2011 in-sourcing  report to Congress, DOD noted that ongoing efforts to collect the  information required by section 2330a may in the future help inform the  number of contractor full-time equivalents in-sourced. In November 2011  DOD submitted to Congress a plan to collect personnel data directly from  contractors. According to this plan, DOD will institute a phased-in  approach to do so by fiscal year 2016.

section_title: DOD and Military Department Approaches to Verifying Reported Data Varied
paragraphs: To produce the report on fiscal year 2010 in-sourcing actions, OUSD  (P&R) requested that DOD components provide certain information about  their fiscal year 2010 in-sourcing actions, and DOD and the military  departments took varying, and in some instances limited, approaches to  ensuring the reliability of the reported data. For example, the Air Force  required major commands to certify the accuracy of the data they  reported to Air Force headquarters, while the Navy also delegated  responsibility for ensuring data reliability to its major commands but did  not establish a policy requiring data certifications. GAO’s Standards for  Internal Control in the Federal Government states that internal controls,  which include verifications and edit checks, help provide management  with reasonable assurance that agencies have achieved their objectives,  including compliance with applicable laws and regulations and the  reliability of financial and other internal and external reports.
subsections: section_title: Process of Collecting Report Data
paragraphs: To obtain data for the report, OUSD (P&R) sent a reporting template to  DOD components which requested the following information: major command/suborganization/directorate, location, in-sourcing rationale, estimated annual savings,

DOD function code, occupational series, whether the position was filled, whether it was part of the defense acquisition workforce, and whether the action had a small business impact.  the name of the component,  OUSD (P&R) included a subset of this information in the September 2011  in-sourcing report to Congress, including the component, major  command/suborganization/directorate, location, rationale, and function  code.

To provide the data, both the Air Force and the Department of the Navy  obtained data from their respective major commands, while the Army  compiled its in-sourcing data at the headquarters level using several data  sources originally populated by major commands. The major commands  we met with in the Air Force and the Department of the Navy—like the  Army headquarters—used various information systems and other sources  in compiling their in-sourcing data, since no one data source could  provide all the information required. These data sources included  personnel databases such as the Defense Civilian Personnel Data  System as well as service-specific personnel systems, and the results of  reviews of contracts and inventories of contracted services, among other  sources.

section_title: Data Validation
paragraphs: The Air Force required major commands to certify the accuracy of the  data they reported to Air Force headquarters on each in-sourcing action.  More specifically, the guidance required reviews and certifications by key  personnel—including reviews by personnel, contracting, finance, and  manpower officials. The guidance included a worksheet which required  certifications of all the data contained in the business case analyses  which were required for each in-sourcing action. Air Force officials told us  that the data contained in the business case analyses were used by  major commands to generate the reports on in-sourcing actions submitted  by the major commands to Air Force headquarters.

The Department of the Navy also delegated responsibility for ensuring  data reliability to its major commands, though it did not establish a  certification requirement or issue other guidance to help ensure the  reliability of the in-sourcing data it collected and reported to OUSD (P&R)  for the in-sourcing report to Congress. Army headquarters officials told us  that they had established a general level of accuracy in the in-sourcing  data by cross-checking three databases in order to produce the data  reported to OUSD (P&R), and by sending the personnel data to major  commands to cross-check with reviews of contracted services. However,  Army headquarters officials told us only a limited number of commands  responded to this data request in time to include their checks in the  submission to OUSD (P&R). Army officials told us the department did not  establish a formal mechanism or issue guidance to ensure the reliability  of the in-sourcing data it reported to OUSD (P&R), but Army headquarters  officials told us that although the in-sourcing data they reported was not of  auditable accuracy, it generally reflected commands’ in-sourcing actions.

At the OSD level, OUSD (P&R) officials told us that due to time and  resource constraints, they did not verify or validate the in-sourcing data  they collected beyond checking for obvious errors such as omissions, and  performing cross-checks with data from the department’s inventory of  inherently governmental and commercial activities. Where disconnects  were identified, an OUSD (P&R) official told us they went back to the  DOD components for correction of inconsistencies. However, the official  told us that there is no mechanism at the OSD level to verify the accuracy  of components’ data, and that this limitation on data verification exists for  all activities in the department, not just in-sourcing. OUSD (P&R) officials  told us that DOD intentionally pursued a decentralized in-sourcing  process to reduce bureaucratic procedures that would have limited  commands’ abilities to make timely in-sourcing decisions.

Our work identified either an inaccuracy in the information reported to  OUSD (P&R) for the in-sourcing report or concerns about the accuracy of  the data included in the report to Congress at four of the nine major  commands we met with, as the following examples illustrate:

The Navy’s Fleet Forces Command acknowledged that while they  reported establishing 348 authorizations (out of a total of 354 fiscal  year 2010 in-sourcing authorizations) to perform information  technology functions that were inherently governmental, these  authorizations should have been categorized as exempt from private  sector performance for continuity of infrastructure operations.  Similarly, Space and Naval Warfare Systems Command officials told  us that 130 of their reported 131 total fiscal year 2010 in-sourcing  authorizations that were identified as inherently governmental were  actually in-sourced for career progression reasons.

Army Medical Command officials told us they did not believe that the  data submitted by the Army for DOD’s in-sourcing report accurately  indicated the correct number of new authorizations as a result of in- sourcing by Army Medical Command in fiscal year 2010. Command  officials told us that because command staff did not have a consistent  understanding of when a new authorization fit the definition of in- sourcing, in some cases new authorizations were coded as in- sourcing when they should not have been, and in other cases new in- sourcing authorizations were not coded as such. The officials said that  as a result, the data Army headquarters drew on to compile the in- sourcing data contained both under- and over-reporting of in-sourcing  actions. Nevertheless, they said they believed the data, though not  precisely accurate, reflected the scale of in-sourcing activity at the  command in fiscal year 2010.

The need for accurate data is not unique to in-sourcing decisions. GAO’s  Standards for Internal Control in the Federal Government states that  internal controls, which include verifications and edit checks, help provide  management with reasonable assurance that agencies have achieved  their objectives, including compliance with applicable laws and  regulations and the reliability of financial and other internal and external  reports. Without access to accurate data, decision makers in DOD and  Congress may not have reliable information to help manage and oversee  DOD’s in-sourcing actions.

section_title: Alignment between In-sourcing Actions and Strategic Workforce Plans Is Unclear
paragraphs: While section 323 of the FY11 NDAA did not require the in-sourcing  report to address whether DOD’s fiscal year 2010 in-sourcing actions  aligned with the department’s strategic workforce plans, DOD officials told  us that the department had taken some initial steps to align these efforts.  Further, DOD officials indicated that DOD’s fiscal year 2010 in-sourcing  efforts were generally consistent with the department’s strategic  workforce objectives. DOD’s in-sourcing implementation guidance  required components to identify contracted services for possible in- sourcing as part of a total force approach to strategic human capital  planning, and we and the Office of Personnel Management have  identified aligning an organization’s human capital program with its  current and emerging mission and programmatic goals as a critical need  of strategic workforce planning.data used in the in-sourcing report and workforce plans hinder an  accurate assessment of the degree to which DOD’s use of in-sourcing  achieved the department’s strategic workforce objectives.

However, differences in the types of  With respect to the steps DOD took to align in-sourcing with its strategic  workforce plans, the department identified a goal for the in-sourcing  initiative in its March 2010 civilian strategic workforce plan. The plan  stated that the goal was to optimize the department’s workforce mix to  maintain readiness and operational capability, ensure inherently  governmental positions were performed by government employees, and  construct the workforce in an effective, cost efficient manner. In addition,  OUSD (P&R) officials noted that they had convened an in-sourcing  “community of interest” in 2009 to prepare DOD’s functional communities  for the fiscal year 2010 in-sourcing efforts, and briefed DOD component  functional community managers on the in-sourcing process. OUSD (P&R)  officials responsible for strategic workforce planning and the report on  fiscal year 2010 in-sourcing actions told us, however, that they had not  established metrics to measure progress toward the stated goal of the in- sourcing effort, and acknowledged that it would be difficult to measure  such progress from the available data.

Further, DOD officials indicated that because DOD uses different  identifiers for workforce planning efforts than it does to track in-sourcing  actions, DOD does not have the ability to correlate the underlying data.  For example, DOD’s most recent strategic workforce plans used  occupational series codes—representing occupations such as budget  analyst (0560) or civil engineer (0810)—while the in-sourcing report used  function codes, which describe a broad area of work such as logistics or  intelligence.occupational series and function codes, and one occupational series can  be found in many different function codes—for example, a budget analyst  could work in logistics or professional military education, among other   DOD officials told us there is no crosswalk between  functions. Though they were not published in the report to Congress, the  data military departments reported to OUSD (P&R) included occupational  series, but those data are limited in the extent to which they can be used  to measure progress against the strategic workforce plans. For example,  the non-acquisition workforce plans did not contain specific workforce  targets for in-sourcing. Similarly, the acquisition workforce plan did not  contain workforce targets by occupational series, but instead outlined  targets for increasing acquisition career fields, which consist of many,  overlapping occupational series. For example, four different career  fields—including the “test and evaluation” and “production, quality &  manufacturing” career fields—contain the general engineer (0801)  occupation. Thus, the data components provided to OUSD (P&R) for the  in-sourcing report also could not be used to compare with the in-sourcing  targets contained in the acquisition community workforce plan.

DOD officials stated that they believe the department’s fiscal year 2010  in-sourcing actions were consistent with the broad goals outlined in their  2010 workforce plans, and had the effect of freeing up funds for higher- priority areas because of cost efficiencies, and of reducing risks  associated with contractors performing inherently governmental or closely  associated with inherently governmental functions. However, without  greater alignment between the in-sourcing data and strategic workforce  plans, decision makers in DOD and Congress have limited information  about the extent to which in-sourcing actions furthered the department’s  strategic workforce goals.

section_title: Conclusions
paragraphs: In-sourcing is one tool DOD can use to balance its workforce mix among  DOD civilians, military personnel, and contractors to help ensure it has  the right balance of in-house capabilities to perform its mission and  reduce the risk of over-reliance on its contractor workforce. DOD stated in  its September 2011 report to Congress that its fiscal year 2010 in- sourcing decisions helped the department achieve these objectives. DOD  reported on its fiscal year 2010 in-sourcing actions as Congress required,  listing the creation of nearly 17,000 new civilian authorizations as a result  of in-sourcing by DOD components. The report also listed the DOD  component taking the in-sourcing action and the basis and rationale for  each action. However, DOD and the military departments took only  limited steps to ensure that the report data, such as the number of new in- sourcing authorizations in each command and the stated rationale for the  actions, were reliable. In some instances, we found the data submitted by  the major commands to be inaccurate due to insufficient mechanisms for  validating the reliability of the data. Without greater assurance of data  reliability, the report itself, as well as any data DOD may continue to  collect on its ongoing in-sourcing actions in the future, may have limited  utility as a tool to facilitate oversight by decision makers in both DOD and  Congress. Likewise, the data collected on in-sourcing could not be used  to measure progress toward the department’s overall goal for its in- sourcing initiative according to its strategic workforce plans. The lack of  alignment between strategic-level workforce plans and the fiscal year  2010 in-sourcing data and the lack of metrics to measure progress  against strategic workforce objectives limits decision makers’ insight into  the extent to which in-sourcing in fiscal year 2010 strengthened the DOD  workforce in key areas.

section_title: Recommendations for Executive Action
paragraphs: To address these issues, we recommend that the Secretary of Defense  take the following two actions:  To enhance insights into and facilitate oversight of the department’s in- sourcing efforts, we recommend that the Secretary of Defense direct the  Under Secretary of Defense for Personnel and Readiness to issue  guidance to DOD components requiring that the components establish a  process to help ensure the accuracy of any data collected on future in- sourcing decisions.

To improve DOD’s strategic workforce planning, we recommend that the  Secretary of Defense direct the Under Secretary of Defense for Personnel  and Readiness to better align the data collected on in-sourcing with the  department’s strategic workforce plans and establish metrics with which  to measure progress in meeting any in-sourcing goals.

section_title: Agency Comments and Our Evaluation
paragraphs: In commenting on a draft of this report, DOD partially concurred with our  two recommendations. DOD’s comments are reprinted in appendix III.

In written comments, DOD stated that there was nothing technically  incorrect with our statements and findings. DOD noted that in-sourcing is  one of many tools managers can use to shape the department’s  workforce, and has enabled managers throughout the department to  enhance internal capabilities, regain control and oversight of mission-  critical functions, mitigate risks associated with over-reliance on  contracted services, and generate efficiencies through resource  realignment. DOD also stated, however, that the department was  concerned that the challenges and problems identified in our report were  not solely unique or attributable to in-sourcing, and that a lack of  clarification on this point might unfairly cast unwarranted criticism on the  use of in-sourcing as a tool available to government managers. We  agree, and have noted in our report that the need for reliable data is not  unique to in-sourcing decisions. However, while the challenges identified  in our report regarding data reliability and alignment of reported data with  strategic workforce plans may not be unique to in-sourcing, they can pose  problems for evaluating the effects of in-sourcing as a tool for workforce  management.

DOD partially concurred with our first recommendation, to require  components to establish a process to ensure the accuracy of in-sourcing  data collected going forward. DOD stated that the challenges to data  accuracy identified in our report are not unique to manpower  requirements and billets established as a result of in-sourcing contracted  services, adding that because the challenges are not unique to in- sourcing, they should not call into question the fundamental value and  efficacy of in-sourcing. Our report does not call the value of in-sourcing  into question. However, we believe that despite challenges to the  accuracy of DOD data in other areas, reliable data on in-sourcing are  necessary for oversight by decision makers in DOD and Congress. The  department also noted that because time-sensitive in-sourcing decisions  must often be made at the command or installation level, any certification  and validation process should occur at that level. We agree and, as we  stated in our recommendation, believe that the department should require  that components establish a process to help ensure the accuracy of in- sourcing data, which does not preclude certification and validation by  commands or installations.

DOD also partially concurred with our second recommendation, to better  align the data collected on in-sourcing with the department’s strategic  workforce plans and establish metrics with which to measure progress in  meeting any in-sourcing goals. The department stated that it has worked  to align in-sourcing and strategic workforce planning efforts and that in- sourcing is one of many tools available to help close competency gaps  and meet strategic workforce planning goals. However, the department  further stated that in-sourcing should not be limited to areas identified in  strategic workforce plans. We do not suggest in our report that in- sourcing should be limited to areas identified in strategic workforce plans,  but believe that the effect that in-sourcing has in helping to achieve  strategic workforce goals should be identified and reported as part of the  oversight of the department’s strategic workforce management. DOD  further stated that objectively measuring in-sourcing outcomes with  traditional workload or personnel metrics is challenging because of  unique, location-specific conditions related to missions, functions, and  operating environments. In that regard, as we state in our report, DOD  officials acknowledged that they had not established metrics to measure  progress against the in-sourcing goal in the department’s most recent  strategic workforce plan and that it would be difficult to use the available  data to assess such progress. However, as our prior work has noted, a  key principle of strategic workforce planning is monitoring and evaluating   We note that without any metrics  progress toward human capital goals.and measurements indicating the extent to which in-sourcing helped the  department make progress toward strategic workforce goals, decision  makers in DOD and Congress will be unable to assess the effect of the  department’s in-sourcing actions in comparison with other actions it may  take to manage the size and composition of the total workforce.

We are sending copies of this report to appropriate congressional  committees, the Secretary of Defense, and other interested parties. 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 any questions concerning this report, please  contact us at (202) 512-3604 or farrellb@gao.gov, or (202) 512-4841 or  martinb@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this report.  Key contributors to this report are listed in appendix IV.

section_title: Appendix I: Scope and Methodology
paragraphs: To evaluate the extent to which the Department of Defense (DOD)  reported on the items required by section 323 of the National Defense  Authorization Act (NDAA) for Fiscal Year 2011, we reviewed DOD’s  report on its fiscal year 2010 in-sourcing actions and compared it with the  items specifically required by the legislation. Specifically, we ascertained  the extent to which DOD reported on: (1) the agency or service of the  department involved in the decision, (2) the basis and rationale for the  decision, and (3) the number of contractor employees whose functions  were converted to performance by DOD civilians. To better understand  the data DOD reported, we reviewed DOD guidance on the in-sourcing  decision-making process as well as statutes and regulations relating to in- sourcing, and met with officials of the Office of the Under Secretary of  Defense for Personnel and Readiness (OUSD (P&R)) responsible for  preparing the report, as well as officials in the departments of the Army,  Navy, and Air Force responsible for submitting data for the report to  OUSD (P&R). We focused our work on the military departments because  together they constituted the majority of in-sourcing actions in fiscal year  2010. We analyzed the data contained in the report to identify patterns in  the in-sourcing actions of the military departments, and met with  representatives of each military department and the selected major  commands to identify the reasons for those patterns. We used these data  to portray the distribution of in-sourcing actions across the military  departments and other DOD agencies, as well as the distribution of in- sourcing rationales in the military services and within certain major  commands. For the purposes of this review, we selected a non-probability  sample of commands from each military service, which included at a  minimum the largest two commands in each service by volume of in- sourcing actions in fiscal year 2010. The sample of commands is not  generalizable to all military department major commands.

To determine the process DOD used to prepare the report and the extent  to which the department assured itself of the reliability of the data, we  reviewed our prior work on standards for internal control in the federal  government. We also reviewed DOD guidance on the in-sourcing  decision process. We analyzed the data contained in DOD’s report to  identify patterns in the in-sourcing actions of the military departments, and  met with officials of OUSD (P&R) in charge of preparing the report, as  well as officials in the three military departments responsible for  submitting in-sourcing data to OUSD (P&R), to identify the reasons for  those patterns. As previously noted, we focused our work on the military  departments because together they constituted the majority of in-sourcing  actions in fiscal year 2010. We obtained and reviewed the in-sourcing  data submitted by the military departments, and compared these data to  the data in the report submitted to Congress. We also met with select  major commands to determine their processes for assuring the reliability  of the data they generated on in-sourcing actions, as well as certain other  major commands with significant in-sourcing actions. We did not  independently verify the data submitted for use in the report. We used  these data to portray the distribution of in-sourcing actions across the  military departments and other DOD agencies, as well as the distribution  of in-sourcing rationales in the military services and within certain major  commands. Although we found problems with some of the command- level data and are making a recommendation to this effect, we found the  data to be sufficiently reliable for the purposes of providing broad  percentages about in-sourcing actions.

To determine the extent to which DOD’s fiscal year 2010 in-sourcing  actions were aligned with the department’s recent strategic workforce  plans, we reviewed our and the Office of Personnel Management’s prior  work on strategic workforce planning. We compared the data in the report  on fiscal year 2010 in-sourcing actions and in-sourcing data submitted by  the three military departments with the department’s most recent strategic  workforce plans (specifically, the 2009 update to the 2006-2010 strategic  workforce plans). We also interviewed officials in OUSD (P&R)  responsible for preparing both the in-sourcing report and the strategic  workforce plans, and officials in the Office of the Under Secretary of  Defense for Acquisition, Technology, and Logistics’ Office of Human  Capital Initiatives responsible for the acquisition community’s strategic  workforce plans.

DOD organizations we contacted during audit work included the following:  In the Office of the Secretary of Defense:

Office of the Under Secretary of Defense (Personnel & Readiness)

Office of the Under Secretary of Defense (Comptroller)

Office of the Under Secretary of Defense (Acquisition, Technology,  and Logistics)

In the Department of the Air Force:

Office of the Assistant Secretary of the Air Force (Manpower &  Reserve Affairs)

Headquarters Air Force

Air Force Materiel Command  In the Department of the Army:

Office of the Assistant Secretary of the Army (Manpower & Reserve  Affairs)

Army Installation Management Command

Army Medical Command  In the Department of the Navy:

Office of the Assistant Secretary of the Navy (Manpower & Reserve  Affairs)

Office of the Chief of Naval Operations

Headquarters Marine Corps

Navy Fleet Forces Command

Naval Sea Systems Command

Space and Naval Warfare Systems Command

Marine Corps Systems Command  We conducted this performance audit from May 2011 to February 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives.

section_title: Appendix II: DOD Cost Estimating Guidance and Cost Estimate Data Collection
paragraphs: While section 323 of the FY11 NDAA did not require DOD to report cost  data on in-sourcing and DOD’s September 2011 report to Congress did  not include any cost-related information, DOD issued guidance to  components on the methodology to use when making cost-based in- sourcing decisions, and the military departments collected and reported  estimated cost information on their respective in-sourcing actions to  varying degrees.
subsections: section_title: Guidance on In-sourcing Cost Estimates
paragraphs: DOD’s May 2009 in-sourcing guidance requires DOD components, in the  case of work which is not determined to be inherently governmental or  exempt from private sector performance and which can be performed by  DOD civilians, to conduct a cost analysis to determine whether DOD  civilian employees or the private sector would be the most cost-effective  provider. In January 2010, DOD issued guidance on the methodology  components should use to estimate the costs of in-sourcing actions when  making cost-based in-sourcing decisions. Officials in the military  departments told us that although the guidance was officially released in  January 2010, the costing rules were available previously and so were  used throughout fiscal year 2010.

section_title: Collecting and Reporting Cost Data
paragraphs: We found that the military departments took different approaches to  collecting and reporting cost-related data associated with their fiscal year  2010 in-sourcing decisions. Specifically, the Air Force collected and  reported cost estimate data for each in-sourcing action—including cost- based, inherently governmental, and exempt functions—to OUSD (P&R).  The Department of the Navy collected and reported cost estimate data to  OUSD (P&R) for most cost-based in-sourcing actions and some actions  that were not cost-based. Specifically, the Navy reported cost estimate  data on some, but not all, in-sourcing actions for functions that were  deemed inherently governmental or exempt from private sector  performance. The Army did not report any estimated cost data for in- sourcing decisions to OUSD (P&R).

section_title: Appendix III: Comments from the Department of Defense

section_title: Appendix IV: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
paragraphs: Brenda S. Farrell, (202) 512-3604 or farrellb@gao.gov.

Belva M. Martin, (202) 512-4841 or martinb@gao.gov.

section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, key contributors to this report  were Marion Gatling, Assistant Director; Randy DeLeon; Tim DiNapoli,  Simon Hirschfeld; John Krump; Ramzi Nemo; Terry Richardson; and Erik  Wilkins-McKee.


Question-summary annotations: questions: question: What issues did DOD report on?
answer: DOD reported on two of three issues required by law: the component involved with each of its fiscal year 2010 in-sourcing actions and the rationale for each action.
child_questions: question: Why didn't DOD report the number of contractor employees whose functions were in-sourced?
answer: However, DOD did not report the number of contractor employees whose functions were in-sourced, because, DOD officials said, the department does not have these data. Specifically, the department noted, in its report to Congress, that it contracts for services and does not hire individual contractor employees.

question: What in-sourcing data did DOD report?
answer: Instead, DOD reported the number of new civilian authorizations created due to in-sourcing.

question: What data has Congress required of DOD regarding contractor employees?
answer: Congress has separately required DOD to report the number of contractor employees performing services for DOD, expressed as full-time equivalents, as part of its inventory of activities performed under contracts for services.
child_questions: question: How might this Congressional requirement improve other DOD reporting?
answer: In its in-sourcing report, DOD said that efforts to comply with this additional requirement may in the future help inform the number of contractor full-time equivalents in-sourced.

questions: question: What information did OUSD (P&R) request from DOD?
answer: The Office of the Under Secretary of Defense for Personnel and Readiness (OUSD (P&R)) requested information from DOD components on fiscal year 2010 in-sourcing actions to produce its report, and the military departments and OUSD (P&R) took varying, and in some instances limited, approaches to ensuring the data’s reliability.
child_questions: question: To what extent was this information reliable?
answer: Additionally, some of the commands GAO contacted made errors in reporting in-sourcing data. For example, 348 of 354 new in-sourcing authorizations by the Navy’s Fleet Forces Command were categorized as inherently governmental when they should have been categorized as exempt from private sector performance for continuity of infrastructure operations.
child_questions: question: How does this compare to federal standards?
answer: Federal internal control standards state that data verification helps provide management with reasonable assurance of achieving agency objectives, including compliance with laws.

question: Why is reliable information critical?
answer: Without accurate data, decision-makers in DOD and Congress may not have reliable information to help manage and oversee DOD in-sourcing.

questions: question: To what extent are contractors essential to the DOD's operations?
answer: The Department of Defense (DOD) relies on contractors for varied functions, and obligated about $200 billion in fiscal year 2010 for contracted services.
child_questions: question: What is in-sourcing?
answer: In-sourcing—moving contracted work to performance by DOD employees—has been one tool through which DOD managed its workforce.

question: What did the National Defense Authorization Act for FY2011 require regarding in-sourcing?
answer: The National Defense Authorization Act for Fiscal Year 2011 required DOD to report on its fiscal year 2010 in-sourcing decisions and required GAO to assess DOD’s report. The act required DOD to report, for each decision, the agency or service involved, the basis and rationale for the decision, and the number of contractor employees in-sourced.
child_questions: question: How did GAO assess this report?
answer: GAO assessed the report against these requirements and examined how DOD prepared the report and assured itself of the data’s reliability, and the extent the in-sourcing actions were aligned with DOD’s strategic workforce plans.
child_questions: question: What data did GAO collect for the review of this project?
answer: GAO reviewed the in-sourcing report, examined in-sourcing guidance, reviewed DOD’s recent strategic workforce plans, and interviewed appropriate department officials.

questions: question: What did GAO recommend to DOD?
answer: GAO recommends that, for future in-sourcing actions, DOD (1) issue guidance to components on verifying in-sourcing data, and (2) better align in-sourcing data with strategic workforce plans and establish metrics to measure progress against in-sourcing goals.
child_questions: question: How did DOD respond to these recommendations?
answer: DOD partially concurred with the recommendations, but noted that the challenges identified in GAO’s report are not unique to in-sourcing.
child_questions: question: To what extent does GAO agree with DOD's response?
answer: GAO agrees, but believes actions are necessary to improve oversight of DOD’s in-sourcing.