DOD Contracted Services: Long-Standing Issues Remain about Using Inventory for Management Decisions
Released: 2018-03-29T00:00:00

Letter

Background

Contracted Services Data Collection and Inventory Requirements and Process

In part to improve the information available and management of DOD’s acquisition of services, Congress enacted section 2330a of title 10 of the U.S. Code in 2001, which required the Secretary of Defense to establish a data collection system to provide management information on each purchase of services by a military department or defense agency. Congress amended section 2330a in 2008 to add a requirement for the Secretary of Defense to submit an annual inventory of the activities performed pursuant to contracts for services on behalf of DOD during the preceding fiscal year.

The inventory is to include a number of specific data elements for each identified activity, including: the function and missions performed by the contractor; the contracting organization, the military department or defense agency administering the contract, and the organization whose requirements are being met through contractor performance of the function; the funding source for the contract by appropriation and operating agency; the fiscal year the activity first appeared on an inventory; the number of contractor employees (expressed as FTEs) for direct labor hours and associated cost data collected from contractors; a determination of whether the contract pursuant to which the activity is performed is a personal services contract; and a summary of the contracted services data required to be collected in subsection 2330a(a) of title 10 of the U.S. Code.

The secretaries of the military departments and heads of the defense agencies are required to review the contracts and activities in the inventory for which they are responsible to ensure that personal services contracts were performed appropriately and that the activities listed do not include inherently governmental functions, among other factors. In addition, in 2011 Congress amended section 2330a to add a requirement that the secretaries of the military departments and heads of the defense agencies develop a plan, including an enforcement mechanism and approval process, to provide for the use of the inventory by the military department or defense agency to implement requirements of section 129a of title 10, U.S. Code (section 129a requires policies and procedures for determining the appropriate mix of military, civilian, and contractor personnel to perform DOD’s mission); facilitate the use of the inventory for compliance with section 235 of title 10, U.S. Code (section 235 requires budget justification materials to include the amount requested for procurement of contract services and the number of full-time contractor employees projected); provide for appropriate consideration of the conversion of activities identified under section 2463 of title 10, U.S. Code (section 2463 requires procedures to ensure civilian employees are considered for performing critical functions); and ensure that the inventory is used to inform strategic workforce planning.

In section 812 of the National Defense Authorization Act for Fiscal Year 2017, enacted in December 2016, Congress further amended section 2330a by reducing the scope of the required data collection, specifying the type of contracted services to be included in an inventory summary submitted to Congress, and calling for particular attention to the military departments’ review of certain high-risk contracts (see table 1).

To address the requirements of section 2330a of title 10, U.S. Code, DOD is to conduct several key steps for each fiscal year (see table 2).

DOD has submitted to Congress annual, department-wide inventories for fiscal years 2008 through 2015. As shown in table 2, each inventory is required to be submitted to Congress by June 30, and is to reflect activities performed during the preceding fiscal year. DOD has not always submitted the inventory to Congress on time. For example, DOD was required to submit the fiscal year 2015 inventory to Congress on June 30, 2016, but did not do so until September 20, 2016. For the inventory of fiscal year 2016 contracted services, the department submitted its summary of the inventory to Congress in February 2018.

Prior GAO Work

Over the past 8 years, we have issued several reports on DOD’s efforts to compile and review its inventory of contracted services. We have made 18 recommendations, 7 of which are still open, on a variety of issues related to the inventory. Key findings and recommendations in our prior work that pertain to this review are included below.

In November 2014, we found the military departments generally had not developed plans to use the inventory to facilitate DOD’s workforce planning, workforce mix, and budget decision-making processes, and that numerous offices were responsible for the various decision- making processes at the military departments. This, in turn, left the department at risk of not complying with legislative requirements. We recommended that secretaries of the military departments identify an accountable official within their departments with responsibility for leading and coordinating efforts across their manpower, budgeting, and acquisition functional communities, and, as appropriate, revise guidance, develop plans and enforcement mechanisms, and establish processes. DOD concurred with the recommendation, but as of January 2018, the Army and Navy still had not identified accountable officials. The Air Force has identified an interim accountable official in its Program Executive Office for Combat and Mission Support, according to an Air Force official.

In November 2015, we found that DOD’s effort to establish an office to implement and support a common, enterprise-wide contractor manpower data system had encountered a number of challenges and lacked clearly defined roles and responsibilities for the office. DOD had not outlined the relationships between the support office, military departments, and other stakeholders in exploring the longer-term solution to collect contractor manpower data and integrate inventory data within the military departments’ decision-making processes. We recommended DOD clearly identify the longer-term relationships between the support office, military departments, and other stakeholders. DOD concurred and has since stood up the support office (now called the Total Force Management Support Division) and implemented the Enterprise-wide Contractor Manpower Reporting Application (ECMRA) department-wide. However, DOD has not yet fully identified longer-term relationships. By doing so, DOD would help ensure that efforts to integrate contracted services data into decision- making processes will meet user needs and expectations.

Most recently, in October 2016, we found that DOD components (which include the military departments) continued to improve their reviews of the inventory compared to prior years, but that they may continue to underreport contractors providing services that are closely associated with inherently governmental functions. Specifically, our analysis found that in fiscal year 2014 DOD obligated about $28 billion for contracts in the product service codes that the Office of Federal Procurement Policy and GAO identified as more likely to include closely associated with inherently governmental functions. In comparison, the components identified a total of $10.8 billion in obligations or dollars invoiced for contracts that included such work. We also found that the military departments had not yet developed plans to use the inventory to inform workforce mix, strategic workforce planning, and budget decision-making. We did not make new recommendations in that report.

DOD Collected Data for the Inventory of Fiscal Year 2016 Contracted Services Using the Same Sources as in Prior Years

To facilitate DOD’s submission of an inventory summary to Congress, OSD’s inventory guidance required each military department to submit to the offices of the USD(AT&L) and USD(P&R) a list of all services provided under contract consistent with the guidance and within the scope of section 2330a of title 10, U.S. Code, as amended by section 812 of the fiscal year 2017 NDAA. The military departments collected data for the fiscal year 2016 inventory using the same data sources—FPDS-NG and ECMRA—as they had in prior years, though each department used slightly different processes from one another.

OSD’s inventory guidance provided for flexibility in how the military departments compiled and submitted data. For example, the guidance required that the inventory submissions include, at a minimum, all purchases of services with a total contract value of $3 million or more and in the following service acquisition portfolio groups: logistics management services; equipment-related services; knowledge-based services; and electronics and communications services. It did not, however, preclude the military departments from submitting additional information beyond the minimum threshold. In addition, under the guidance, military departments were encouraged to augment FPDS-NG data with data from ECMRA, as has been the process in the past. We analyzed the effect of the recent statutory changes, as implemented in OSD’s inventory guidance, on fiscal year 2016 contracted services data reported in FPDS- NG and compiled by USD(AT&L). We found that the number of service purchases reported under the inventories across the department would be reduced to about 2 percent of the total service purchases if the components reported only the minimum information required under OSD’s guidance. This approach would capture about 30 percent of the total service contract dollars.

Officials responsible for overseeing the data collection effort within each of the three military departments stated that for fiscal year 2016 they collected data captured in FPDS-NG and ECMRA, as they have done for previous inventories. The military departments varied somewhat in how they collected and reported their data, which is permitted under OSD’s guidance. The following is a description of the military departments’ processes for collecting data and key aspects of their inventories:

Army officials stated that they extracted their inventory data for fiscal year 2016 primarily from ECMRA and used FPDS-NG data to fill gaps in data not collected in ECMRA, such as data on aspects of contract competition (e.g., number of offers and small business considerations). Army officials estimated that the total invoices in ECMRA represented approximately 80 percent of contracted services obligations for fiscal year 2016. In its inventory, submitted to OSD in January 2018, the Army reported services purchased under contract actions with fiscal year 2016 invoiced amounts both above and below $3 million. The Army reported that its fiscal year 2016 inventory accounts for $31 billion in invoiced amounts and 157,000 contractor FTEs.

Navy officials stated that they captured nearly all of their inventory data for fiscal year 2016 from FPDS-NG and combined it with ECMRA data. Navy officials estimated that approximately 75 percent of the Navy services contracts that it believed should have been reported in ECMRA were reported during fiscal year 2016. The Navy submitted summary data, including fiscal year 2016 obligations and contractor FTEs by command and in total, to OSD in December 2017. The Navy did not provide a list of its fiscal year 2016 service purchases in time to be included in the inventory summary for Congress, but a USD(AT&L) official said the information provided was sufficient to allow OSD to prepare the summary. The Navy subsequently submitted its full inventory of fiscal year 2016 contracted services to OSD in March 2018 and reported over $6.5 billion in obligations and over 45,000 contractor FTEs.

Air Force officials stated that they drew approximately 75 percent of the data elements required for the inventory for fiscal year 2016 from FPDS-NG. Air Force officials stated that they also extracted data from the Air Force financial management system, such as total contracted dollar amounts, and manpower data from ECMRA. Air Force officials did not have an estimate of the percentage of service contracts that were reported in ECMRA in fiscal year 2016. The Air Force submitted its inventory to OSD in December 2017 and included services purchased under contract actions with fiscal year 2016 invoiced amounts or obligations both above and below $3 million. In addition, the Air Force specifically identified purchases within each of the four service acquisition portfolio groups specified in OSD’s inventory guidance. The Air Force reported approximately $14.6 billion in obligations with an estimated 73,400 contractor FTEs in its fiscal year 2016 inventory.

A USD(AT&L) official stated that he used the information provided by the military departments and defense components to help create the inventory summary required by section 812 of the fiscal year 2017 NDAA. OSD submitted this inventory summary to Congress in February 2018. This official added that OSD will discuss whether changes in its guidance for the next inventory are needed to clarify what information the military departments and defense components should submit.

Military Departments Have Not Developed Statutorily Required Plans and Continue to Make Limited Use of the Inventory to Inform Management Decisions

The military departments generally have not developed plans to use the inventory to inform management decisions as required by subsection 2330a(e) of title 10 of the U.S. Code and OSD’s inventory guidance. Further, manpower and budget officials said they make limited use of the inventory to inform strategic workforce planning, workforce mix, and budget decisions. This situation is similar to what we have found in our past work. Manpower and budget officials we spoke with stated the inventory is often too outdated to inform their decision-making, though the inventory provides a single source of certain types of information that are not readily available elsewhere. This limited use may also reflect, in part, the lack of accountable officials responsible for developing plans and enforcement mechanisms to use the inventory, as we recommended in November 2014.

Military Departments Generally Have Not Developed Plans to Use the Inventory for Decision- Making

Subsection 2330a(e) of title 10 of the U.S. Code, DOD Instruction 5000.74, and OSD’s inventory guidance direct the military departments and defense agencies to use the inventory to inform workforce and budget decisions. When we last reported on this issue in October 2016, we identified 12 guidance documents from the military departments related to strategic workforce planning, workforce mix, and budget decisions. Our current work found that 14 documents, some of which are the same as what we reported in October 2016, make up the current set of military departments’ guidance in these areas. Further, we found the degree to which these guidance documents require the use of the inventory in these areas is still minimal—3 of the 14 documents include requirements related to the inventory (see table 3).

Two documents, the Army’s July 2009 memorandum on civilian workforce management and the Army’s March 2010 concept plan guidance, require the use of the inventory for insourcing plans to convert contracted activities to performance by government personnel. Air Force Instruction 38-201 on management of manpower requirements directs the Air Force manpower division to support the review of the inventory, but does not require its use for workforce mix decisions.

As noted previously, in November 2014 we found that no single office or individual at the military departments was responsible for leading or coordinating efforts between the various functional areas to develop a plan to use the inventory to inform management decisions. As a result we recommended that the secretaries of the military departments identify accountable officials to do so. As of January 2018, the Army and Navy still had not named accountable officials responsible for developing plans and enforcement mechanisms to use the inventory for workforce and budget decisions, according to officials at those departments. Navy officials said they have not reached agreement on the appropriate managerial level of an accountable official. According to an Air Force official, the Air Force has named an official from the Program Executive Office for Combat and Mission Support to serve on an interim basis. We continue to believe this recommendation is valid and should be fully implemented.

Military Departments Make Limited Use of the Inventory for Decision- Making

Army manpower officials we interviewed stated that the inventory provided information that was not readily available elsewhere and the information collected in the inventory process may be useful for making workforce mix decisions. For example, Army manpower officials said the inventory provides a single source for information like the number of contractor FTEs, contractor labor hours and costs, the location of work performance, and the functions performed. Army officials said they can use this information to analyze cost factors and contract expenditures and compare them to in-house costs. In addition, Army officials noted the inventory provides information to address questions from Congress, DOD, and Army leadership about the number and cost of contractors, and that it is the only source of detailed data that supports analysis of the contractor workforce mix that is statutorily required. Comptroller, Navy, and Air Force officials added that they use information from the inventory to estimate the average number of contractor FTEs that are reported in DOD’s annual budget request.

However, representatives from the workforce and budgeting offices within the military departments we interviewed also noted that the inventory has limitations that hinder its use. These officials noted that the data reflected in the inventory are often too outdated to help inform strategic decisions that are usually made at the local level—such as a specific military installation—based on real-time data. For example, Air Force officials said that under the program objective memorandum (POM) process, the Air Force identifies future budget requests and workforce needs 2 years before the beginning of a fiscal year, whereas the most recent inventory data available may already be 2 years old when that process starts. To illustrate the issue, the officials noted that they were already planning for the 2020 POM in early fiscal year 2018, although the fiscal year 2016 inventory was not yet available. As a result, if the Air Force were to use inventory data to plan for the 2020 POM, they would have to rely on fiscal year 2015 inventory data.

Air Force officials also said certain types of information that are useful for strategic planning, such as planned contracts for services and the scope and duration of the existing contracts, are not captured in the inventory process. Army officials had a similar perspective and said they do not use the inventory to plan for the POM because collecting data on past contracted services is not as relevant to estimating future requirements and funding needs.

As part of Congress’s efforts to inform DOD’s management of its acquisition of contracted services, it enacted the inventory legislation. We concluded in January 2011 that the real benefit of the inventory process would ultimately be measured by its ability to inform management’s decision-making. As noted above, we have made recommendations to help improve this decision-making, which we continue to believe should be fully implemented. DOD officials have also identified ways in which the inventory can be useful.

Recent legislation and our prior work in other related areas have identified additional means through which DOD can manage its acquisitions of contracted services.

In December 2017, the National Defense Authorization Act for Fiscal Year 2018 was enacted. Section 851 requires DOD to regularly analyze past spending patterns and anticipated future requirements for its procurement of services and use these analyses to inform decisions on the award of and funding for such service contracts.

In August 2017, we found DOD had not fully implemented three key leadership positions that were intended to enable DOD to more strategically manage service acquisitions. We recommended the USD(AT&L) reassess the roles, responsibilities, authorities, and organizational placement of key leadership positions to help foster strategic decision-making and improvements in the acquisition of services. DOD concurred with our recommendation. In December 2017, the Deputy Secretary of Defense appointed a reform leader for service contracts and category management—an approach intended to manage entire categories of spending across government for commonly purchased goods and services—and established related reform teams to help ensure department-wide efficiency in contract spending.

In February 2016, we found that DOD’s and Congress’s insight into future spending on contracted services was limited because DOD did not identify service contract spending needs beyond the current budget year. Although program offices generally kept track of their future service contract needs and estimated costs for 5 years out, they were not required to identify planned service contract spending beyond the budget year. We recommended that the military departments revise their programming guidance to collect information on how contracted services will be used to meet requirements beyond the budget year. DOD partially concurred with our recommendation, but noted that the volatility of requirements and each budget cycle constrain the department’s ability to accurately quantify service contract requirements beyond the budget year. We agreed that requirements and budgets change over time, but our work showed that the needed data already exists and is not captured in such a way to inform senior leadership on future service contract spending. We continue to believe that implementing this recommendation will assist the department in gaining better insight into contracted service requirements and enable more strategic decisions about the volume and type of services it plans to acquire.

Agency Comments

We are not making new recommendations in this report. We provided a draft of this report to DOD for comment. In its written comments, which are reprinted in appendix I, DOD stated that it remains committed to improving its processes for collecting, analyzing, and reporting contracted services data. DOD also provided technical comments, which we incorporated as appropriate.

We are sending copies of this report to the appropriate congressional committees; the Secretary of Defense; the Secretaries of the Army, Navy, and Air Force; the Under Secretary of Defense for Personnel and Readiness; the Under Secretary of Defense for Acquisition and Sustainment; and the Under Secretary of Defense (Comptroller). In addition, the report is available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-4841 or dinapolit@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II.

Appendix I: Comments from the Department of Defense

Appendix II: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Katherine Trimble (Assistant Director); Brenna Derritt (Analyst-in-Charge); Pete Anderson; Dennis Antonio; Vincent Balloon; Lorraine Ettaro; Gina Flacco; Kristine Hassinger; and Julia Kennon made significant contributions to this review.