Defense Contractors: Additional Actions Needed to Facilitate the Use of DOD's Inventory of Contracted Services
Released: 2014-11-19T00:00:00

Letter

Background

Inventory Compilation Requirements

In part to improve the information available and management of DOD’s acquisition of services, in fiscal year 2002 Congress enacted section 2330a of title 10 of the U.S. Code, which required the Secretary of Defense to establish a data collection system to provide management information on each purchase of services by a military department or defense agency. The information DOD is to collect includes, among other things, the services purchased, the total dollar amount of the purchase, the form of contracting action used to make the purchase, and the extent of competition provided in making the purchase. In 2008, Congress amended section 2330a to add a requirement for the Secretary of Defense to submit an annual inventory of the activities performed pursuant to contracts for services on behalf of DOD during the preceding fiscal year.

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

Within DOD, AT&L, P&R, and the Comptroller have shared responsibility for issuing guidance for compiling and reviewing the inventory. P&R compiles the inventories prepared by the components, and AT&L formally submits a consolidated DOD inventory to Congress no later than June 30 of each fiscal year, though some inventory submissions have been later. DOD has submitted annual, department-wide inventories for fiscal years 2008 through 2013, the most recent submitted on July 2, 2014 (see table 1).

Since DOD implemented the department-wide inventory of contracted services, the primary source used by DOD components to compile their inventories, with the exception of the Army, has been Federal Procurement Data System-Next Generation (FPDS-NG). As we have previously reported, the FPDS-NG—the government’s central repository for contracting data—has several limitations that impact its utility for purposes of compiling a complete and accurate inventory. For example, FPDS-NG does not capture the number of contractor FTEs or direct labor hours used to perform each service, does not capture any services performed under contracts that are predominately for supplies, and does not identify more than one type of service purchased for each contract action. As the inventory is required to identify each activity performed pursuant to a contract for services, the use of FPDS-NG as the basis for the data in the DOD components’ inventories does not satisfy the inventory statute, and limits the usefulness of inventory data in making management decisions.

As we previously reported, to obtain better visibility of its service contractor workforce, the Army developed its Contractor Manpower Reporting Application (CMRA) in 2005 to collect information on labor-hour expenditures by function, funding source, and mission supported on contracted efforts, and has used CMRA as the basis for its inventory. CMRA captures data directly reported by contractors on services performed at the contract line item level, including information on the direct labor dollars, direct labor hours, total invoiced dollars, the functions performed, and the organizational unit on whose behalf the services are being performed. In instances where contractors are providing different services under the same task order, or are providing services at multiple locations, contractors can enter additional records in CMRA to capture information associated with each type of service or location. It also allows for the identification of services provided under contracts for goods.

Inventory Review and Use Requirements

Within 90 days after an inventory is submitted to Congress, section 2330a(e) of title 10 of the U.S. Code requires the secretaries of the military departments or heads of the defense agencies to complete a review of the contracts and functions in the inventory for which they are responsible. P&R, as supported by the Comptroller, is responsible for, among other things, developing guidance for the conduct and completion of this review. As part of this review, the military departments and defense agencies are to ensure that: any personal services contracts on the inventory were properly entered into and performed appropriately; the activities on the list do not include any inherently governmental functions; and to the maximum extent practicable, the activities on the inventory do not include any closely associated with inherently governmental functions.

Section 2330a(e) also requires under this review that the secretaries of the military departments and heads of defense agencies identify work that should be considered for conversion to government performance, or insourced, pursuant to section 2463 of title 10 of the U.S. Code, or to a more advantageous acquisition approach. Section 2463 specifically requires the Secretary of Defense to make use of the inventory to identify critical functions, acquisition workforce functions, and closely associated with inherently governmental functions performed by contractors, and that the Under Secretary of Defense for P&R implement guidelines and procedures to give special consideration to converting those functions to DOD civilian performance.

Further, section 808 of the National Defense Authorization Act for Fiscal Year 2012 requires the Secretary of Defense to issue guidance to the military departments and the defense agencies to, among other things, eliminate contractor positions identified as performing inherently governmental functions and reduce, by 10 percent, funding for contractor staff performing closely associated with inherently governmental functions in fiscal years 2012 and 2013. As implemented by DOD, the secretaries of the military departments and heads of the defense agencies are instructed to use the fiscal year 2010 inventory, or the fiscal year 2011 inventory if the data are unknown in the 2010 inventory, as the baseline against which the 10 percent funding reductions will be made. GAO has ongoing work to assess DOD’s compliance with section 808.

In addition, in December 2011 section 2330a of title 10 of the U.S. Code was amended to add a new subsection (f) requiring the secretaries of the military departments and heads of the defense agencies responsible for contracted services in the inventory to develop a plan, including an enforcement mechanism and approval process, to use the inventory to inform management decisions (see figure 1).

Collectively, these statutory requirements mandate the use of the inventory and the associated review process to enhance the ability of DOD to identify and track services provided by contractors, achieve accountability for the contractor sector of DOD’s total workforce, help identify contracted services for possible conversion from contractor performance to DOD civilian performance, support DOD’s determination of the appropriate workforce mix, and project and justify the number of contractor FTEs included in DOD’s annual budget justification materials.

Prior GAO Work

We have issued several reports on DOD’s efforts to compile and review its inventory of contracted services, including initiatives to standardize contractor manpower data collection across the department. For example, in January 2011 we recommended that DOD develop a plan of action to facilitate the department’s stated intent to collect contractor manpower data and address other limitations in its approach to meeting inventory requirements, such as using FPDS-NG to compile the required inventories.

In April 2012, we reported that DOD issued a plan in November 2011 to develop a common technology solution, leveraging existing data collection approaches, such as the Army’s CMRA system, that would allow the department to collectively meet the inventory requirements. DOD’s November 2011 plan provided for short-term and long-term actions intended to meet the requirements of 10 U.S.C. § 2330a. DOD stated that it was committed to assisting components as they implement their plans, especially those currently without reporting processes or infrastructure in place, by leveraging the Army’s CMRA system, processes, best practices, and tools to the maximum extent possible. Part of the long-term plan was to develop a comprehensive instruction for components to use on the development, review, and use of the inventories and for the Office of the Deputy Chief Management Officer, P&R, and other stakeholders to form a working group to develop and implement a common data system to collect and house the information required for the inventory, including contractor manpower data. DOD noted in its plan that it expected the data system to be operational and DOD components to be reporting on most of their service contracts by fiscal year 2016. While we found the plan represented a step in the right direction, it did not contain timeframes or resources needed, as we had previously recommended. Further, we found that DOD faced challenges in developing a common data collection system given the different requirements of the military departments and the remaining defense agencies.

In May 2013, we reported that a November 2012 memorandum stated that DOD would establish a common data collection system based on the Army’s CMRA system—the Enterprise wide Contractor Manpower Reporting Application (ECMRA)—for DOD components to begin reporting data in time for the department’s fiscal year 2013 inventory submission, but did not expect that components would fully use the system for most of their contracts for services until fiscal year 2016. We found that the department had taken steps to implement interim CMRA-based data collection systems for the Air Force and Navy. At that time, DOD noted that it expected to field an interim CMRA-based data collection system that would be shared by the remaining defense agencies, which DOD subsequently fielded in September 2013. In May 2014, however, we found that while the department took interim steps, it had not fully implemented the common data collection system as called for in its November 2011 plan.

Components Better Addressed Reporting Requirements in Fiscal Year 2012, but Some Reviews Were Incomplete

We found that DOD components’ 2012 inventory review certifications better addressed DOD’s required reporting elements than in prior years, but the department continues to face challenges in assuring that all DOD components conduct and report on the required reviews. For example, as of September 2014, 32 of the 33 components certified that they had reviewed their inventory of contracted services and, overall, more components addressed more of DOD’s required reporting elements than in fiscal year 2011. However, the Air Force, which accounts for about 20 percent of DOD’s obligations for contracted services, did not submit a certification letter, as required. Further, the Army, which represents 30 percent of DOD’s obligations for contracted services, submitted a certification though its review was incomplete at the time the Secretary of the Army signed the letter. This occurred, in part, because it did not include a review of functions in one command or review functions that were transferred between two commands. DOD also continues to face challenges in fully implementing the CMRA-based common data system that is intended to collect the required data for the inventories DOD components must review, thus jeopardizing its plan to have all components using this system to collect manpower data reported by contractors by 2016. DOD recently directed a study to identify and develop other enterprise solutions to address the inventory data collection requirements by December 2014. It is uncertain whether DOD will continue to implement its previous plan for a DOD-wide system based on the Army’s CMRA system.

Fiscal Year 2012 Review Results Demonstrate Improved Reporting, but Challenges Remain

DOD’s February 2013 guidance for the fiscal year 2012 inventory, issued jointly by AT&L and P&R, included two changes that DOD officials believed would improve the completeness and granularity of the inventory review data reported in the certification letters from the prior year. The changes included an increase in the percentage of contract functions to review from the component’s inventories from 50 percent to 80 percent and one additional data element—the review results table. The guidance instructed components to include at a minimum seven elements in their certification letters (see table 2).

Overall, we found DOD components generally addressed more of the required elements in their fiscal year 2012 certification letters than they had in fiscal year 2011 (see table 3).

Our analysis found that seven components, representing about 15 percent of the total dollars included in the department’s inventory of contracted services, addressed all seven elements required, and nearly 80 percent of the components addressed at least five of the seven elements. We found that about one-third of the components did not address the required element to identify the appropriate manpower mix and about half did not address the required element to identify actions taken to ensure appropriate reallocation of resources based on the reviews.

While this represents an improvement over the inventory review results reported in the fiscal year 2011 certification letters, we also found several significant limitations with the fiscal year 2012 inventory results reported in the certification letters. For example,

The Air Force, which represented about 20 percent of DOD’s contract obligations for services in fiscal year 2012, did not submit a certification letter. Air Force officials stated that they focused on completing the fiscal year 2013 inventory review rather than submitting the required fiscal year 2012 certification letter.

The Army, which accounted for about 30 percent of DOD’s contract obligations reported in DOD’s fiscal year 2012 inventory for contracted services, certified in its April 2014 letter that it reviewed more than 80 percent of contracted functions from its inventory, which an Army official told us was based on contract invoice amount. However, the data supporting the certification letter revealed issues at three Army commands that comprise more than a quarter—or $23.4 billion—of the Army’s reported invoiced dollars, indicating that the Army may have overstated the contract functions reviewed. For example, the certification letter did not include review data from the Army Acquisition Support Command because their review was not complete when the Army submitted its certification letter. This command represented $10.7 billion, or 14 percent, of the Army’s total invoiced dollars for contracted services reported in fiscal year 2012. Further, the Army Installation Management Command, which accounted for 30 percent of Army’s reported contractor FTEs performing closely associated with inherently governmental functions in fiscal year 2011, transferred responsibility for some of these functions to the Army Materiel Command. However, officials at the Army Materiel Command reported that they did not include these transferred functions in the fiscal year 2012 review, stating that there were too many new contracts to review in one year. The officials added that for this and other reasons, the command’s review data for fiscal year 2012 are not complete or accurate.

While 21 of the 32 components certified that they reviewed at least 80 percent of contract functions, we found that components interpreted contract functions differently. DOD’s February 2013 guidance for the fiscal year 2012 inventory required components to review at least 80 percent of the functions associated with all contracts, task orders, delivery orders, or interagency acquisition agreements listed in the inventory. The guidance further states that priority shall be given to contracts previously not reviewed or those that may present a higher risk of inappropriate performance. However, the guidance does not specify how to determine the percent of contract functions nor identify what types of contracts may be at a higher risk of inappropriate performance. As such, some components specified that they reviewed a percentage of product service codes, contract obligations, individual contracts, or contractor FTEs identified in their inventories. In other cases the letters did not indicate what the component considered a contract function.

Certification letters also varied in terms of the information and insights provided on the methodologies used to review the selected contract functions in the inventories, and it was not clear from the letters whether all components considered contractor performance and contract administration when reviewing selected contracts. DOD’s February 2013 guidance for the fiscal year 2012 inventory requires components to consider the nature of contract performance and administration, but it does not define what processes may be used to review functions to determine the types of activities performed. For example, one component’s review compared inventory data to basic information in the component’s contract writing system and relied on the component’s acquisition planning process to determine how the contract was performed. At another component, the review included coordination with program managers, contracting officers, contracting officer representatives, and budget officials and consideration of a range of data and documents to identify and understand whether the work performed under the contract included inappropriate functions. One component we interviewed, the Army, provided additional details in its guidance on which officials should participate in the review and how to assess contract activities. The Army requires a checklist at various points in the contract cycle, including contract award and modification, to identify activities performed under the contract and help inform the inventory review process. The Army requires the reviewer to be a person in the requiring activity who is familiar with how the contract is administered and performed and thoroughly understands the work being performed.

Some officials we interviewed expressed confusion over the various functional categories in the review results table and noted that the distinction between inherently governmental, closely associated with inherently governmental, and personal services is not always clearly understood. Officials we interviewed at four of the six components provided supplemental inventory review guidance including definitions for some of the functions to help define inappropriate performance or contract activities that require additional management attention.

Components May Have Understated Contractors Performing Certain Functions

The lack of specific guidance on how to identify or review contract functions may have led to components understating the degree to which contractors were providing services closely associated with inherently governmental functions. Fifteen of the 32 components identified contractors performing closely associated with inherently government functions in the fiscal year 2012 inventory and provided more specific information on contractor FTEs performing these functions than in fiscal year 2011. For example, eight components reported that they had contracts containing these functions in their fiscal year 2011 certification letters without providing specific information on the number of contractor FTEs. In their fiscal year 2012 certification letters, however, these eight components identified the specific number of contractor FTEs and obligations associated with these functions. Another 15 components certified they did not have contractors performing closely associated with inherently governmental functions, while two components’ certification letters did not address closely associated with inherently governmental functions. Appendix II provides details on components that identified contractors performing inherently governmental functions.

In May 2013, we found it was difficult to determine how many contractors are performing closely associated with inherently governmental functions based on components’ reported methodologies and inventory review results. Further, we found that DOD components may not have accurately identified the extent to which their contractors are performing closely associated with inherently governmental functions during their reviews. Based on our latest review of the fiscal year 2012 inventory review results, it is still not clear whether DOD components fully identified the extent to which their contractors are performing closely associated with inherently governmental functions.

Our latest review, similar to our prior work, found that DOD contracts for significant amounts of professional and administrative and management support services. A significant portion of contracts for these services were for services that are likely to be closely associated with inherently governmental functions. We identified total obligations for categories of contracted services that often include services closely associated with inherently governmental functions based on DOD components’ fiscal year 2012 inventory submission data. We compared those totals to the total obligations certified by DOD components as being for contractors performing closely associated with inherently governmental functions in the fiscal year 2012 certification letters. This analysis found significant gaps between these two categories, suggesting that some of the inventory review processes or methodologies may not be sufficient to accurately identify closely associated with inherently governmental functions. In contrast to the Navy and other defense agencies, even the Army’s incomplete review identified that nearly half of its total obligations in these categories were for the performance of closely associated with inherently governmental functions (see figure 2).

With regard to identifying contractor FTEs that may be performing inherently governmental functions or unauthorized personal services, only the Army identified such contractors during their fiscal year 2012 inventory review. The Army reported that it had identified 62 contractor FTEs performing inherently governmental functions and five contractor FTEs providing unauthorized personal services, both figures representing significant declines since fiscal year 2011. As noted previously, however, we found the Army’s review of its fiscal year 2012 inventory may not have included the minimum requirement of 80 percent of contract functions. While the Air Force did not submit a certification letter in fiscal year 2012, Air Force officials told us that they had incorrectly identified contractors performing inherently governmental functions and unauthorized personal services in their 2011 inventory review.

However, neither the Army nor the Air Force provided information as to how they resolved the prior instances in which they found that contractors were performing such functions. We previously recommended in May 2013 that the Secretary of Defense instruct components to provide updated information in certification letters on how they resolved the instances of contractors performing inherently governmental functions or unauthorized personal services identified in prior inventory reviews. DOD partially concurred with this recommendation, stating that DOD would focus on the fiscal year 2012 reporting requirements and that any instances of contractors performing inherently governmental functions or unauthorized personal services that persist from prior inventory reviews would be included and fully documented in the fiscal year 2012 and future inventory review processes. Further, DOD said it would verify that the certification letters contain a complete and accurate description of actions taken to resolve outstanding issues related to contractors performing these functions prior to closing the review process.

Federal internal control standards call for managers to measure and assess performance over time to ensure effectiveness and efficiency of operations and compliance with applicable laws and regulations. Without accurate identification of the functions contractors are performing, DOD cannot be assured that proper oversight is in place or provide data to ensure that it is meeting statutory requirements to reduce, to the maximum extent practicable, the number of contractors performing closely associated with inherently governmental functions or assure that contractors are not performing inherently governmental functions.

Fiscal Year 2013 Guidance Does Not Address All Reporting Challenges

DOD issued guidance applicable to the components’ fiscal year 2013 inventories in March 2014. To assist components’ reviews, this guidance provides definitions for inherently governmental, closely associated with inherently governmental, personal services, and critical functions, consistent with the FAR and the Office of Federal Procurement Policy (OFPP) guidance. DOD’s guidance, however, does not specify the percent of contract functions to be reviewed nor identify the basis to determine the percentage of contract functions to be reviewed. P&R officials indicated that the intent is for components to review all contract functions; however, some component officials we interviewed said it was not clear to them. The March 2014 guidance also indicates that components should review the nature or way the contract is performed and administered as well as the organizational environment within which it is operating beyond what can be accessed via a review of the information listed within the inventory, but does not provide specific approaches to do so.

Uncertainties Continue in Implementing a Common Manpower Reporting Data System

A key factor to facilitate the components’ review of the functions that contractors perform is the availability of accurate and reliable data. As we reported in May 2014, DOD officials noted that the lack of dedicated resources has been a key factor hindering implementation of its planned ECMRA, the common data system based on the Army’s CMRA system. To address this factor and support the data collection efforts, DOD provided funding for six civilian FTEs for the Defense Human Resources Agency, starting in fiscal year 2015. We reported in May 2014 that DOD officials had anticipated these staff would comprise a new support office to coordinate DOD’s efforts to define business processes for compiling, reviewing, and using the inventory. This effort has encountered a number of challenges, which officials noted may jeopardize the department’s goal to fully implement ECMRA by fiscal year 2016. For example, the effort lacks a formal agreement, including roles and responsibilities, between the Assistant Secretary of Defense for Readiness and Force Management and the Defense Human Resources Agency, the parties responsible for implementing ECMRA and related business processes. As we concluded in our May 2014 report, DOD did not have a comprehensive plan with timeframes and milestones to measure its progress toward developing a common contractor manpower data system and associated business processes.

More recently, a September 17, 2014 memorandum from the Acting Assistant Secretary of Defense for Readiness and Force Management appointed a Strategic Review and Planning Officer as the official responsible for identifying and developing enterprise solutions related to the inventory data collection requirements prescribed by title 10, U.S. Code, section 2330a. The official is authorized to identify, develop, and consider all reasonable options, in both the short and long-terms, and propose courses of action by December 1, 2014 to P&R. Once a course of action is approved, the memorandum directs the official to develop a detailed implementation plan, but does not provide timeframes for completion. A P&R official told us that, until such time as there has been a decision whether to pursue a new approach or continue forward with implementation of ECMRA, DOD will defer using the additional resources allocated for the Defense Human Resources Agency. This review raises a question about whether DOD will continue to implement a DOD-wide inventory data collection system modeled after the Army’s CMRA system or attempt to develop a new system. Until such time as DOD components are able to collect the required data for their inventories, the utility of their inventory reviews for making workforce mix decisions will be hindered.

The Military Departments Have Not Developed Statutorily Required Plans or Identified Specific Responsibilities to Facilitate the Use of the Inventory

The military departments have not developed plans or enforcement mechanisms to use the inventory of contracted services to inform strategic workforce planning, workforce mix, and budget decision-making processes, as statutorily required. Despite the lack of specific plans, the military departments have taken some initial steps to use the inventory to inform management decisions such as insourcing and estimating FTEs for budgetary purposes. Disparate offices are responsible for the various decision-making processes at the military departments, and the secretaries of the military departments have not assigned specific responsibility for coordinating among these offices to develop plans to use the inventory to inform such decisions. In part, the absence of accountable officials to integrate the use of the inventory leaves the department at continued risk of not complying with the applicable legislative requirements to use the inventory to support management decisions.

Strategic Workforce Planning, Workforce Mix, and Insourcing Guidance Decisions Generally Do Not Require the Use of the Inventory

P&R has overall responsibility for developing and implementing DOD’s strategic workforce plan to shape and improve the DOD’s civilian workforce, including an assessment of the appropriate total force mix. P&R issued guidance that designated responsibility for the development of the strategic workforce plan to the Deputy Assistant Secretary of Defense for Civilian Personnel Policy, but did not require use of the inventory. This guidance predates the statutory requirement to use the inventory to inform strategic workforce planning. For example, the Fiscal Years 2013-2018 Strategic Workforce Plan, the most recent plan available at the time of our review, states that DOD’s plans for identifying and assessing workforce mix will leverage the inventory of contracted services, but does not provide any additional details on using the inventory.

None of the three military departments has developed a statutorily required plan or enforcement mechanism to use the inventory of contracted services and generally they have not developed guidance or processes for these purposes (see table 4).

DOD has two department-wide policies for determining workforce mix— DOD directive 1100.4 and DOD instruction 1100.22—but neither currently requires the use of the inventory to inform workforce mix planning. DOD Directive 1100.4, dated February 2005, provides general guidance concerning determination of manpower requirements, managing resources, and manpower affordability. According to P&R officials, revisions to this directive, which are currently under review, will be revised to explicitly require use of the inventory to inform budgeting and total force management decisions. DOD Instruction 1100.22, dated April 2010, provides manpower mix criteria and guidance for determining how individual positions should be designated based on the work performed. This instruction does not direct the military departments to develop a plan to use the inventory to inform management decisions, as DOD issued it before the enactment of the requirement for developing such plans.

DOD’s primary insourcing guidance is reflected in April 4, 2008 and May 28, 2009 memoranda. These memoranda reiterate statutory requirements by calling for DOD components and the military departments to use the inventory of contracted services to identify functions for possible insourcing and to develop a plan for converting these functions within a reasonable amount of time. Among the military departments, however, only Army has guidance and a process that requires use of the inventory of contracted services for insourcing. However, the military departments have not issued guidance for managing workforce mix that requires the use of the inventory of contracted services (see table 5).

Programming and Budget Decisions Generally Do Not Require the Use of the Inventory, Though Data on Estimated Contractor FTEs Are Included in the Budget

DOD’s Financial Management Regulation provides, among other things, guidance to the military departments on budget formulation and presentation; however, these regulations do not require the military departments to use the inventory in formulating and presenting their budgets. At the military department level, the Air Force has issued additional instructions in terms of budget formulation and presentation. However, the Air Force’s guidance does not require the use of the inventory.

The Comptroller has issued supplemental guidance requiring, among other things, that the military departments and defense components provide information on the number of FTEs as required under 10 U.S.C. § 235, but this guidance does not require reporting the amount of funding requested for contracted services. The Comptroller guidance for budget submissions from all components has remained similar for the past three fiscal years, instructing DOD components to ensure that contractor FTEs reported in the budget exhibit are consistent with those in the DOD’s inventory of contracted services. Both Navy and Air Force officials reported that they used the inventory of contracted services to estimate the number of contractor FTEs for inclusion in their budget request. The Army budget office does not have a process to use the inventory to inform budgeting and could not identify how the Army estimated FTEs in the Army’s budget submission (see table 6).

Within the Military Departments, Responsibility for Developing a Plan to Use the Inventory for Management Decisions is Not Clearly Assigned

Within the military departments various offices are responsible for conducting the compilation and review of the inventory of contracted services, managing workforce mix decisions, and conducting budgeting (see table 7).

Based on our analysis, however, no single office or individual is responsible for leading or coordinating efforts between the various functional areas to develop a plan and enforcement mechanism to use the inventory to inform these processes. During interviews, officials at each of the military departments were uncertain who was responsible for developing a plan and enforcement mechanisms to use the inventory to inform management decisions. For example, the Assistant Secretary of the Army for Acquisition, Logistics, and Technology indicated that the responsibility for developing the Army’s plan fell to the manpower community, but a manpower official stated his office is not explicitly tasked with this responsibility. Internal control standards in the federal government state that management should establish an organizational structure, delegate authority for key roles, and assign responsibility to enable an organization to achieve management objectives and to comply with laws. The absence of clearly defined roles and responsibilities for integrating the use of the inventory in these processes, as appropriate, leaves the department at continued risk of not complying with the applicable legislative requirements to leverage the inventory to support management decisions.

Conclusions

In the six years since DOD first submitted its initial department-wide inventory of contracted services and conducted the associated reviews, DOD’s progress remains uneven and uncertain. DOD components addressed more of the reporting elements prescribed by P&R and AT&L guidance, but it is less clear that the fiscal year 2012 reviews were any more informative than prior reviews in certain key areas. The Air Force failed to submit an inventory review certification letter while the Army submitted incomplete review data for several major commands. In addition, DOD components may not have fully identified all instances of contractors performing closely associated with inherently governmental functions. DOD’s fiscal year 2013 guidance does not fully address some of the shortcomings our review identified, including how to identify contracts to review or the methodologies or approaches to use to ensure the components’ inventory reviews adequately assess contractor activities. As a result, components may not fully identify instances of contractors providing services that are closely associated with inherently governmental functions. Without a thorough review of contractor activities, DOD risks becoming overly reliant on contractors to support core missions.

Further, it is up to the department to provide a system that is capable of providing accurate and reliable data to support these reviews. Continued delays and uncertainties in implementing its planned ECMRA system hinder achievement of this objective. We had previously recommended that DOD develop a plan of action with timeframes and milestones to measure DOD’s progress in implementing a common data system, but DOD has yet to do so. DOD identified the lack of dedicated resources as the primary obstacle to resolving technical issues, including help desk support and establishing common processes across the department. DOD allocated fiscal year 2015 funding to support this effort; however, DOD is delaying committing these resources pending the completion of a review to identify and develop appropriate enterprise solutions, including short- and long-term options, no later than December 1, 2014. Continued delays in developing an implementation plan increases the risk that DOD will be unable to collect the statutorily required data needed to serve as the basis for DOD’s inventory review process.

Additionally, the military departments generally do not have plans to use the inventories for strategic workforce planning, workforce mix and insourcing decisions, or budget and programming decisions. The same is generally true for the processes that underlie these decisions, with the exception of the Army’s efforts to use the inventory and associated review process to help inform workforce mix and insourcing decisions. One factor contributing to this condition is the fact that multiple offices are responsible for performing tasks within their specific area of responsibility, but there are no offices or individuals that have been specifically tasked to lead or coordinate efforts to facilitate the use of the inventory within each of the military departments. Internal control standards state that management should establish an organizational structure, delegate authority for key roles, and assign responsibility to enable an organization to achieve management objectives and to comply with laws. Entrusting one or more individuals with the responsibility for carrying out these requirements is likely to produce more positive results quicker than if DOD continues to engage in piecemeal and ad hoc efforts within each functional area. The absence of clearly defined roles and responsibilities for integrating the use of the inventory in these processes, as appropriate, leaves the department at continued risk of not complying with the applicable legislative requirements to leverage the inventory to support management decisions.

Recommendations for Executive Action

To better implement the requirements for reviewing the inventory of contracted services, we recommend that the Under Secretary of Defense for Acquisition, Technology and Logistics and the Under Secretary of Defense for Personnel and Readiness work jointly to revise annual inventory review guidance to clearly identify the basis for selecting contracts to review and to provide approaches the components may use to conduct inventory reviews that ensure the nature of how the contract is being performed is adequately considered. If DOD intends for components to review less than 100 percent of its contracts, then the guidance should clearly identify the basis for selecting which contracted functions should be reviewed.

To help facilitate the department’s stated intent to develop a common data collection system to fully collect statutorily required data, we recommend that the Under Secretary of Defense for Personnel and Readiness approve a plan of action, with timeframes and milestones, for rolling out and supporting a department-wide data collection system as soon as practicable after December 1, 2014. Should a decision be made to use or develop a system other than the e-CMRA system currently being fielded, we recommend that the Under Secretary of Defense for Personnel and Readiness document the rationale for doing so and ensure that the new approach will provide data that satisfies the statutory requirements for the inventory.

To help ensure that the inventory of contracted services is integrated into key management decisions as statutorily required, we recommend that the Secretaries of the Army, Navy, and Air Force 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.

Agency Comments and Our Evaluation

We provided a draft of this report to DOD for comment. In its written comments, which are reprinted in appendix III, DOD concurred with our recommendations and described the actions it plans to take though it did not provide timeframes for completing such actions. DOD also provided technical comments, which we incorporated in the report as appropriate.

In response to our recommendation to revise its inventory review guidance to provide more clarity on which contracted functions should be reviewed and to provide approaches the components may use to ensure that the nature of how the contract is being performed is considered, the department noted it is currently enhancing its guidance for the fiscal year 2014 inventory of contracted services and intends to have components review and certify 100 percent of the services reported in their respective inventory. DOD did not address whether DOD’s guidance will provide approaches components may use to conduct inventory reviews to ensure contract performance is adequately considered. There may be no singular approach appropriate for all DOD components; however, DOD could provide a range of suggested approaches to ensure components accurately identify functions performed. While we appreciate DOD’s actions to address the recommendation, the fact that only seven of the components fully addressed each element contained in AT&L and P&R’s previous guidance underscores, in our view, the need for more direct involvement by DOD to ensure compliance.

In response to our recommendation to approve a plan of action with timeframes and milestones to help facilitate the development of a common data collection system, DOD noted that all DOD components are using ECRMA to facilitate compilation of their respective inventory of contracted services. DOD agreed that if the Department decides to move away from ECMRA, the decision will be fully documented, ensuring satisfaction of statutory requirements.

In response to our recommendation to identify an accountable official within the military departments to help ensure the inventory of contracted services is integrated into key management decisions and to coordinate efforts across manpower, budgeting and acquisition communities, DOD agreed. DOD also indicated that a cognizant accountable official should be identified at the remaining defense components (e.g. defense agencies, field activities, and combatant commands). While our work in this area focused on the military departments, we agree that it is important for components across DOD to ensure each organization develops a plan and enforcement mechanisms for using the inventory of contracted services to inform management decisions.

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

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

Appendix I: Objectives, Scope, and Methodology

Section 951(a) of the National Defense Authorization Act for Fiscal Year 2014 directs GAO to report, for fiscal years 2014, 2015, and 2016, on DOD’s implementation of title 10 U.S. Code section 2330a subsections (e) and (f). To satisfy the mandate for 2014, we assessed DOD’s efforts to (1) implement subsection (e) to review contracts and activities in the inventory of contracted services for the fiscal year 2012 inventory and (2) implement subsection (f) to develop plans and processes to inform how the inventory will be used to facilitate strategic workforce planning, workforce mix, and budget decisions. We used data from the fiscal year 2012 inventory as it was the most recent inventory at the time of our review.

To assess the extent to which DOD components—to include the three military departments and the defense agencies— implemented the required review of contracts and activities in the inventory of contracted services pursuant to subsection(e), for the fiscal year 2012 inventory, we examined the guidance related to the fiscal year 2012 inventory review process which the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics (AT&L) and the Acting Under Secretary of Defense for Personnel and Readiness (P&R) issued on February 4, 2013. The February 2013 guidance requires components to certify completion of the review and report on seven elements including the contract selection criteria and methodologies used to conduct the reviews; the extent to which contractors were found to be performing certain functions, to include inherently governmental and closely associated with inherently governmental; and to the extent necessary, a plan to realign performance of such functions to government performance. We analyzed all unclassified fiscal year 2012 certification letters submitted by 32 components to P&R as of September 2014 to determine if components reported on all seven required elements. We did not analyze any classified certification letters submitted, such as that by the Defense Intelligence Agency.

We also reviewed the Office of Federal Procurement Policy’s (OFPP) November 5, 2010 guidance for civilian agencies’ service contract inventories. This guidance directs agencies to give priority consideration to reviewing certain categories of contracted services that the guidance and GAO’s prior work have indicated often include closely associated with inherently governmental functions. The guidance identifies 15 product service codes describing these categories of contracted services. We reviewed the total amount DOD components obligated for closely associated with inherently governmental functions with the total amount they reported obligating for the categories of contracted services identified in the OFPP’s guidance and two additional product service codes identified in GAO’s prior work to compare the dollars obligated and contractor full-time equivalents (FTEs) reported for these product services codes. We did not independently assess the accuracy or reliability of the underlying data supporting the components’ inventories of contracted services and associated reviews. Our previous work, however, identified data limitations with those DOD components using data from FPDS-NG as the basis for their inventories. We discuss these limitations in the report, as appropriate.

In performing our work to assess the extent to which DOD implemented subsection (e) to review contracts and activities in the inventory of contracted services for the fiscal year 2012 inventory we interviewed cognizant officials from AT&L; P&R; the Under Secretary of Defense (Comptroller); the Departments of the Army, Navy, and Air Force; and three defense components – the Defense Logistics Agency (DLA); the Defense Threat Reduction Agency (DTRA), and the Office of the Director of Administration and Management (ODA&M). We selected the Army, Navy, and Air Force for additional review because they represented about 74 percent of the obligations reported in the inventory and selected DLA and DTRA, because they reported having the most instances of contractors performing closely associated with inherently governmental functions, as expressed in contractor FTEs. We selected ODA&M because they reported having the fewest contractor FTEs performing closely associated with inherently governmental functions, despite having high obligations for professional services and program management services, two categories of contracted services known to often include closely associated with inherently governmental functions.

To assess the extent to which DOD components have developed plans and processes to use the inventory to inform management decisions pursuant to subsection (f), we reviewed defense-wide and military department-specific strategic planning, manpower mix, and budgeting documentation and interviewed officials responsible for developing and using this guidance. To determine whether DOD guidance informing strategic planning, manpower mix and budgeting calls for the use of the inventory of contracted services in planning processes, we reviewed the DOD’s Fiscal Year 2013-2018 Strategic Workforce Plan Report and associated guidance for completing the plan, DOD’s instruction on manpower mix criteria, DOD’s memoranda guiding the conversion of contracted functions to government functions, and guidance issued by the Comptroller that informed the fiscal year 2013, 2014, and 2015 budget submissions. When applicable we reviewed workforce mix instructions and budgeting regulations. In addition we reviewed memoranda, slides, and meeting minutes to review processes that the military departments had underway to determine if these processes addressed the requirements of title 10 U.S.C. § 2330a(f).

In performing our work to assess the extent to which DOD components have developed plans and processes to use the inventory to inform management decisions pursuant to subsection (f) we interviewed cognizant officials from AT&L, P&R and the Comptroller, and the three military departments. We discussed identification of a cognizant official for the plans and processes with acquisition, manpower, programming, and budgeting officials.

In addition, we evaluated DOD’s progress in implementing a common data system since our most recent report in May 2014. To do so, we reviewed existing documentation including memoranda, planning documents, and guidance for establishing a common data system. We also interviewed officials from P&R to discuss progress toward the common system and associated business processes.

We conducted this performance audit from May 2014 to November 2014 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 audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on audit objectives.

Appendix II: Comparison of Components’ Identification of Contractors Providing Services Closely Associated With Inherently Governmental Functions in their Fiscal Year 2011 and 2012 Certification Letters

Appendix II: Comparison of Components’ Identification of Contractors Providing Services Closely Associated With Inherently Governmental Functions in their Fiscal Year 2011 and 2012 Certification Letters The Navy did not identify the number of FTEs, but noted they have 25 contracts that contained these functions.

The agency did not identify the number of FTEs in current contracts, but noted they have contracts that contained these functions.

The agency did not identify the number of FTEs, but noted that they had contractors performing these functions.

The agency did not identify the number of FTEs, but noted that 4.5 percent of their sample of more than 50 percent of contract actions contained these functions.

The agency did not identify the number of FTEs, but noted that several contracts contained these functions.

The components did not identify the number of FTEs, but reported that 24 out of 950 contracts consolidated from the three components had contractors performing these functions.

The commands did not identify the number of FTEs, but noted that “some requirements” contained these functions.

As of September 2014, the Air Force has yet to provide a certification letter for the fiscal year 2012 inventory identifying contractor FTEs in either category. Further, the fiscal year 2011 data from the Air Force were based on preliminary estimates, and the Air Force did not provided a final certification letter for fiscal year 2011. The Office of the Secretary of Defense, Director of Administration and Management submitted a consolidated review on behalf of the Office of the Secretary of Defense, Washington Headquarters Service, and the Pentagon Force Protection Agency, but did not specifically identify which components reported contractors performing closely associated with inherently governmental functions. In addition, officials responsible for the consolidated review identified an error in the certification letter and updated it to reflect 14.7 contractor FTEs performing closely associated with inherently governmental functions.

Appendix III: Comments from the Department of Defense

Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above Penny Berrier, Assistant Director; MacKenzie Cooper; Kate Eberle; Kristine Hassinger; John Krump; Caryn E. Kuebler; Jean McSween; Oziel Trevino; and Candice Wright made key contributions to this report.