In part to improve the information available and management of DOD’s acquisition of services, in 2001 Congress enacted section 2330a of title 10 of the U.S. Code, which required the Secretary of Defense to establish a data collection system to provide management information on each purchase of services by a military department or defense agency. Congress amended section 2330a in 2008 to add a requirement for the Secretary of Defense to submit an annual inventory of the activities performed pursuant to contracts for services on behalf of DOD during the preceding fiscal year. The inventory is to include a number of specific data elements for each identified activity, including the function and missions performed by the contractor; the contracting organization, the component of DOD administering the contract, and the organization whose requirements are being met through contractor performance of the function; the funding source for the contract by appropriation and operating agency; the fiscal year the activity first appeared on an inventory; the number of contractor employees (expressed as FTEs) for direct labor, using direct labor hours and associated cost data collected from contractors; a determination of whether the contract pursuant to which the activity is performed is a personal services contract; and a summary of the information required by subsection 2330a(a) of title 10 of the U.S. Code. Within DOD, USD(AT&L), USD(P&R), and the Office of the Under Secretary of Defense (Comptroller) have shared responsibility for issuing guidance for compiling and reviewing the inventory. USD(P&R) compiles the inventories prepared by the components, and USD(AT&L) is to submit a consolidated DOD inventory to Congress no later than June 30 of each fiscal year. DOD has submitted annual, department-wide inventories for fiscal years 2008 through 2015, the most recent submitted on September 20, 2016 (see table 1). Since DOD began reporting on the department-wide inventory of contracted services in fiscal year 2008, the primary source used by most DOD components to compile their inventories, with the exception of the Army, has been FPDS-NG. The Army developed its CMRA system in 2005 to collect information on labor-hour expenditures by function, funding source, and mission supported on contracted efforts, and has used its CMRA as the basis for its inventory. The Army’s CMRA is intended to capture data directly reported by contractors on services performed at the contract line item level, including information on the direct labor dollars, direct labor hours, total invoiced dollars, the functions performed, and the organizational unit for which the services are being performed. In instances where contractors are providing different services under the same contract action, or are providing services at multiple locations, contractors can enter additional records in CMRA to capture information associated with each type of service or location. It also allows for the identification of services provided under contracts for goods. Subsection 2330a(e) of title 10 of the U.S. Code requires the secretaries of the military departments or heads of the defense agencies to complete a review of the contracts and activities in the inventory for which they are responsible within 90 days of the inventory being submitted to Congress. USD(P&R), as supported by the Comptroller, is responsible for, among other things, developing guidance for the conduct and completion of this review. As part of this review, the military departments and defense agencies are to ensure that any personal services contracts in the inventory were properly entered into and performed appropriately; the activities on the list do not include any inherently governmental functions; and to the maximum extent practicable, the activities in the inventory do not include any functions closely associated with inherently governmental functions. This review also requires the secretaries of the military departments and heads of defense agencies to identify activities that should be considered for conversion to government performance, or insourced, pursuant to section 2463 of title 10 of the U.S. Code, or to a more advantageous acquisition approach. Section 2463 specifically requires the Secretary of Defense to make use of the inventory to identify critical functions, acquisition workforce functions, and closely associated with inherently governmental functions performed by contractors—and to give special consideration to converting those functions to DOD civilian performance. In addition, subsection 2330a(f) of title 10 of the U.S. Code requires the secretaries of the military departments or heads of the defense agencies responsible for contracted services in the inventory to develop a plan, including an enforcement mechanism and approval process, for using the inventory to inform management decisions (see figure 1). Collectively, these statutory requirements mandate the use of the inventory and the associated review process to enhance the ability of DOD to identify and track services provided by contractors, achieve accountability for the contractor sector of DOD’s total workforce, help identify contracted services for potential conversion from contractor performance to DOD civilian performance, support DOD’s determination of the appropriate workforce mix, and project and justify the number of contractor FTEs included in DOD’s annual budget justification materials. Over the past five years, we have issued several reports on DOD’s efforts to compile and review its inventory of contracted services and made recommendations on a variety of issues related to the inventories. For example, in January 2011, we found that the military departments had differing approaches to reviewing the activities performed by contractors, and the department stated it had a goal of collecting manpower data from contractors for future inventories. We recommended that the department develop a plan of action to facilitate the department’s intent of collecting manpower data and address other limitations to its current approach to meeting inventory requirements. The department concurred with our recommendation but had not addressed it as of August 2016. In November 2015, we found that the lack of documentation on whether a proposed contract includes closely associated with inherently governmental functions may result in inventory review processes incorrectly reporting these functions, and recommended that DOD require acquisition officials to document, prior to contract award, whether the proposed contract action includes activities that are closely associated with inherently governmental functions. DOD concurred with our recommendation, but has not yet implemented it. A full list of our prior reports on DOD’s inventory of contracted services, the recommendations from those reports, and the current status of those recommendations— including eight that remain open—is included in appendix I. Our prior work has also consistently found that the absence of a complete and accurate inventory of contracted services hinders DOD’s ability to improve its management of these services. For example, in a June 2016 report on DOD headquarters personnel reduction efforts, we found that DOD does not have reliable data for assessing headquarters functions and associated costs, including those performed by contractor personnel. We concluded that without reliable information, DOD may not be able to accurately assess specific functional areas or identify potential streamlining and cost savings opportunities. In a December 2015 report on civilian and contractor personnel reductions, we found that limitations in the methodology for contractor FTE estimates in the inventory may hinder efforts to implement statutorily mandated reporting on reductions in contractor personnel. Further, in a February 2016 report on DOD efforts to forecast service contract requirements, we found that existing data on DOD’s future spending for contracted service requirements was not fully captured by DOD’s programming and budget processes, an effort the inventory of contracted services is intended to support. We noted that critical to being more strategic is knowing what DOD is spending today and what DOD intends to spend in the future. More DOD components conducted and certified the completion of an inventory review as required by subsection 2330a(e) of title 10 of the U.S. Code and DOD’s guidance, respectively, in fiscal year 2014 as compared to previous years. Overall, we found that the 40 components’ certification letters addressed more of DOD’s required elements in comparison to prior years, with over half of the components including all six of the required elements. In some areas, however, we continued to find limitations with the information provided in the certification letters. For example, the level of detail and input provided on the use of the inventory to inform annual program reviews and budget processes varied. In addition, we continued to find significant differences and potential underreporting in the extent to which components identified instances of contractors providing services that are closely associated with inherently governmental functions in their inventories. For example, through its review process, the Army identified $8.1 billion in invoiced dollars for contracts that include closely associated with inherently governmental functions, nearly three times the amount identified by the Navy, Air Force, and other defense agencies collectively for similar types of contracts. USD(AT&L) and USD(P&R)’s December 29, 2014, guidance governing the fiscal year 2014 inventory of contracted services required the military departments and defense agencies to certify—through submission of a certification letter to the USD(P&R)—that their review was conducted in accordance with subsection 2330a(e) of title 10 of the U.S. Code. As of July 2016, 40 DOD components reporting for fiscal year 2014 certified that they had reviewed their inventories. Notably, the Air Force, which represented close to 18 percent of DOD’s contract obligations for services in fiscal year 2014, submitted a review certification letter for the first time since the fiscal year 2011 inventory. The Army submitted an interim certification letter in April 2016 based on a review of the contracted functions performed by 73 percent of its contractor FTEs from its fiscal year 2014 inventory. DOD’s guidance for fiscal year 2014, among other things, requires components to include six elements in their certification letters. DOD components’ certification letters have generally improved each year since 2011 in terms of the number of elements addressed. See figure 2 for the list of required elements and the percentage of components that addressed each element in their certification letters for fiscal years 2011 to 2014. Overall, in fiscal year 2014 components addressed more of DOD’s required elements in comparison to prior years, as 21 of the 40 components—or over half—addressed all required elements in their certification letters (see figure 3). While these findings demonstrate that improvements have been made in terms of compliance with the review requirements, review results reported in certification letters varied in terms of the level of detail and insights provided on certain elements, in particular for the element that requires components to provide input on actions being taken or considered with regard to annual program review and budget processes based on the inventory review results. For example, of the 23 components that we found addressed this requirement in their fiscal year 2014 certification letters, the Navy and one other component discussed specific actions taken or plans based on the inventory review results to inform existing or future program and budget processes; nine components, including the Air Force, discussed their existing or planned program review or budget processes, but did not explicitly state how the review results would be used to inform those processes; ten components, including the Army, described the inventory as one source of information available to inform programming and budget matters, but did not provide input on whether specific actions were taken or considered based on those review results; and in two cases, components reiterated language from DOD’s review guidance in their certification letters to affirm that they had addressed the required element, but did so without adding any component- specific information. Of the 17 components that we found did not address the requirement in their fiscal year 2014 certification letters, 12 did not include any narrative related to the required element and therefore it is not clear whether the component had considered the use of the inventory in program reviews and budget processes. Three components’ certification letters stated explicitly that no actions were taken or considered based on the fiscal year 2014 review results, nor did they provide additional narrative to indicate whether the inventory review information is used generally to inform programming and budget matters. Two components each submitted a consolidated inventory and certification letter consisting of the collective review results and responses for the components under their purview, in which not all of the individual responses addressed the requirement. Similar to our November 2015 report, we found that components may continue to be underreporting instances of contractors providing services that are closely associated with inherently governmental functions in their inventory review. In this regard, our analysis indicates that DOD obligated about $28 billion for contracts in the 17 product service codes that OFPP and GAO identified as more likely to include closely associated with inherently governmental functions. In comparison, of the 40 components reporting for fiscal year 2014, 25 components identified a total of $10.8 billion in obligations or dollars invoiced for contracts that included work identified as closely associated with inherently governmental functions—either within the 17 product service codes or for any other category of service. We also found significant disparity among the components’ reporting of these functions (see figure 4). Specifically, through its review process, the Army identified $8.1 billion in invoiced dollars for contracts that include closely associated with inherently governmental functions. In comparison, our analysis of Army’s inventory data identified $10.2 billion in invoiced dollars for Army contracts in the 17 product service codes. In contrast, the Navy, Air Force, and other defense agencies collectively identified only about $2.7 billion in obligations and invoiced dollars for contracts that include closely associated with inherently governmental functions in their inventories, while our analysis of each component’s inventory data identified $17.9 billion in collective obligations for contracts in the 17 product service codes. We previously found shortcomings with DOD’s annual inventory review guidance, such as a lack of specific guidance on how to identify or review contract functions, and concluded that, as a result, components may be missing opportunities to properly identify contractors performing closely associated with inherently governmental functions. In November 2014, we recommended, in part, that DOD revise its guidance to clearly identify the basis for selecting contracts to review and to provide approaches the components may use to conduct inventory reviews to ensure that the nature of how the contract is being performed is adequately considered. In November 2015, we reported that DOD’s December 2014 guidance for the fiscal year 2014 inventory did not address our recommendation to provide such clarification; however, DOD officials noted that a risk-based approach to select which contracts to review may be appropriate. As such, we recommended that DOD ensure that components review, at a minimum, those contracts within the product service codes identified as requiring heightened management attention and as more likely to include closely associated with inherently governmental functions. DOD’s March 2016 guidance for the review of the fiscal year 2015 inventory—the first issued after our recommendation—requires components to review those contracts; however, it is too soon to determine what effect the revised guidance will have on the components’ forthcoming inventory reviews. In addition to the lack of specific inventory review guidance, our November 2015 review also identified other factors that may also contribute to components incorrectly identifying contracts that may include closely associated with inherently governmental functions during the pre-contract award process. Specifically, we concluded that the lack of a requirement for acquisition officials to document, during the pre- award process, whether a proposed contract includes closely associated with inherently governmental functions hinders a component’s ability to both identify and report on contractors performing such functions. The Army’s pre-award process, specifically the Request for Services Contract Approval form, requires documentation of a determination whether a contract includes closely associated with inherently governmental functions; however, the Air Force and Navy do not have department-wide requirements to document this determination in their contract files. DOD concurred with both of our November 2015 recommendations to require acquisition officials to document, prior to contract award, whether contract actions include such activities, and to provide clear instructions on how the service requirement review boards will be used to identify whether contracts contain such functions. Officials from the Office of Defense Procurement and Acquisition Policy—the office within USD(AT&L) responsible for contracting and acquisition policy—indicated at that time that a forthcoming DOD Instruction on service acquisitions would include direction to consider planned activities under a contract during the service requirement review boards. DOD Instruction 5000.74, issued in January 2016, includes discussion related to identifying closely associated with inherently governmental functions in the inventory, but not in the context of the service requirement review boards. The military departments generally have not developed plans to use the inventory of contracted services to inform workforce mix, strategic workforce planning, and budget decision-making processes, as required by the National Defense Authorization Act for Fiscal Year 2012. DOD has recently made progress in identifying accountable officials to develop plans and establish processes for using the inventories in decision making, a step we recommended in November 2014 to help ensure the inventory is integrated into key management decisions. Despite this effort, DOD faces continued delays to key steps in the implementation of the inventory process, including choosing the path forward for its underlying inventory data collection system, staffing its inventory management support office, and formalizing the roles and responsibilities of that office and its relationship to the military departments and other stakeholders. Collectively, these persistent delays hinder the department’s ability to use the inventory of contracted services as intended. The military departments generally have not developed plans and enforcement mechanisms as required by subsection 2330a(f) of title 10 of the U.S. Code to use the inventory of contracted services to inform workforce mix, strategic workforce planning, and budget decision-making processes. Our November 2014 report on the fiscal year 2012 inventory found that the military departments—with the exception of the Army, which used the inventory to inform decisions about workforce mix and insourcing—lacked plans and processes to incorporate the inventory into decision making. While DOD’s December 2014 guidance for the fiscal year 2014 inventory more explicitly required components to use the inventory reviews to inform programming and budget matters, and to inform their strategic workforce planning efforts—which carried through to their fiscal year 2015 guidance—our current work found that the military departments generally continue to lack plans and processes to do so. Appendix II presents the findings of the November 2014 report on these plans and processes, with updates, where appropriate. At the department level, in January 2016, USD(AT&L) issued DOD Instruction 5000.74, Defense Acquisition of Services, which establishes policy, assigns responsibilities, and provides direction for the acquisition of contracted services. In commenting on our November 2015 report, DOD stated that this instruction would provide guidance on identifying closely associated with inherently governmental activities. The instruction notes that DOD components will submit an annual inventory of contracted services, and that the inventory and associated review are to be used to inform acquisition planning and workforce shaping decisions, but does not provide any specific guidance as to how the inventories are to contribute to such decisions, including guidance for identifying closely associated with inherently governmental activities. DOD officials more recently stated that this instruction is intended as policy for acquisition officials, not as a document on workforce planning. We previously found that the responsibility for developing plans and enforcement mechanisms to use the inventory for decision-making processes was not clearly assigned and was divided across multiple offices. In our November 2014 report, we recommended that the secretaries of the military departments identify an accountable official to lead and coordinate efforts across the functional communities to develop plans and establish processes for using the inventory for decision making. DOD concurred with this recommendation. No components identified an accountable official with their fiscal year 2014 inventory submission. However, DOD’s March 2016 guidance for the fiscal year 2015 inventory explicitly required the identification of an accountable official to help ensure that the inventory is integrated into key management decisions. As of July 2016, 41 components had submitted their fiscal year 2015 inventories, of which 30 identified an accountable official in their transmittal letter. However, none of the three military departments, which represent 73 percent of service contract obligations reported in the fiscal year 2014 inventory, have yet identified an accountable official. In its transmittal letter for fiscal year 2015, the Air Force stated that it first needs to better understand the roles and responsibilities of the inventory management support office. The Army’s fiscal year 2015 transmittal letter states that it is in the process of identifying an appropriate official. As of July 2016, the Navy has not yet submitted its fiscal year 2015 transmittal letter. DOD has twice conducted reviews in the past two years to assess its approach to conducting the inventory. DOD officials noted that, to some degree, these reviews have contributed to delays in choosing the path forward for its underlying inventory data collection system, staffing the support office, and formalizing the roles and responsibilities of that office and its relationship to the military departments and other stakeholders. These delays may, in turn, hinder the development and implementation of plans and enforcement mechanisms for using inventory data to inform workforce and budget decision-making processes. As shown in figure 5, DOD has struggled since 2011 to determine the best way forward for collecting data for the inventories. In September 2014, DOD undertook an internal review of strategic options to identify, develop, and consider all reasonable options, in both the short and long terms, and propose courses of action for appropriate enterprise solutions to facilitate data collection for the inventory. However, DOD’s strategic review of options in 2014 did not lead to a definitive way forward. In November 2014, we found that DOD’s strategic review of options raised questions as to whether DOD will continue to implement ECMRA—a DOD-wide inventory data collection system modeled after the Army’s CMRA system—or attempt to develop a new system. We concluded that, until such time as DOD components are able to collect the required data for their inventories, the utility of the inventory for making workforce decisions will be hindered. We recommended that, should a decision be made to use or develop a system other than the ECMRA system currently being fielded, USD(P&R) should document the rationale for doing so and ensure that the new approach provides data that satisfies the statutory requirements for the inventory. In 2015, the Joint Explanatory Statement to the National Defense Authorization Act for Fiscal Year 2016 mandated that DOD report on the approach the department is taking to comply with the inventory requirement and whether it is producing a product that enhances oversight of service contracting activities. DOD contracted with the RAND National Defense Research Institute in December 2015 to assess the methods used by DOD to produce the inventory of contracted services and to recommend improvements, including alternative methods of collecting, processing, and reporting data on contracted services. RAND provided preliminary briefings to DOD in March and May of 2016, and its final report is expected to be delivered later this year. While awaiting the results of its internal review and, subsequently, the RAND review, DOD delayed fully staffing its support office and defining its specific roles, authorities, and relationships to the military departments and other stakeholders, as shown in figure 6. In 2014, a USD(P&R) official told us that DOD would defer the use of additional resources for the support office until such time as there had been a decision whether to pursue a new approach or continue forward with implementation of ECMRA. Similarly, in 2016, USD(P&R) officials told us that they wanted to be more confident of the planned direction for the inventories before committing to additional hiring. Further, more than two years since the support office was funded, DOD has yet to define the roles and responsibilities of the office. In November 2015, we recommended that USD(P&R) clearly identify these longer term relationships between the support office, military departments, and other stakeholders with respect to collection and use of inventory data. DOD concurred and told us that the release of a memorandum of agreement between the Assistant Secretary of Defense for Manpower and Reserve Affairs and the Director of the Defense Human Resource Activity on short term roles and responsibilities for the support office would do so, but as of August 2016, the memorandum of agreement had yet to be formalized. Additionally, DOD officials indicated that the memorandum of agreement will not address the roles to be played by the support office, the military departments, and other stakeholders in exploring the longer term solution to collecting contractor manpower data and integrating inventory data within the military departments’ decision-making processes. Supplemental agreements will be necessary to formalize these relationships. The absence of clearly identified relationships between the support office and other stakeholders has hindered efforts to implement ECMRA and integrate the data into decision-making processes that will meet user needs and expectations. In addition to these uncertainties about finalizing an approach to the inventory, our review found that DOD components’ reliance on data captured in their CMRA systems for their inventories has varied. DOD’s March 2014 guidance for the fiscal year 2013 inventory, as well as guidance for subsequent inventories, required components to include the percentage of their total contracts that were reported by contractors in their CMRA system and the extent to which reported data were used to support their inventory submission. Contractors are required to report labor hour data by the end of October for work executed during the period of performance within the one year period beginning October 1 of the prior year and ending September 30. DOD components are then supposed to use this contractor-reported data from CMRA to help develop their inventories. We found that 22 out of the 40 components, comprising about 96 percent of total FTEs reported in the DOD inventory, reported using CMRA data for the fiscal year 2014 inventory submission. In contrast, only nine components reported using CMRA to do so in the fiscal year 2013 inventory. Table 2 identifies changes in use of CMRA data by the military departments from fiscal year 2013 to fiscal year 2015. Air Force and Navy both continue to rely heavily on FPDS-NG data to derive the contractor FTEs for those contracts not entered into CMRA. Navy officials stated that they do not view all contractor-reported CMRA data to yet be robust enough to support consistent, reliable use for the inventory. However, as we have previously reported, the FPDS-NG system has several limitations that limit its utility for purposes of compiling a complete and accurate inventory, including not being able to identify and record more than one type of service purchased for each contracting action entered into the system, not being able to capture any services performed under contracts that are predominantly for supplies, not being able to identify the requiring activity specifically, not capturing service contracts awarded on behalf of DOD by non- not being able to determine the number of contractor FTEs used to perform each service. Since 2011, we have made 13 recommendations to help improve how DOD collects, reviews, and uses the data from the inventory of contracted services (see appendix I for a complete list and the status of DOD’s actions to address them). We are not making any new recommendations in this report, but rather we underscore the need to address the 8 recommendations that remain open. In particular, DOD needs to resolve the long-standing delays and uncertainties regarding implementation of the ECMRA system—or an alternative to that system—which have hindered efforts to provide reliable and accurate data. Over five years ago, we recommended that DOD develop a plan of action with timeframes and necessary resources to measure DOD’s progress in implementing a common data system and we offered a similar recommendation two years ago when it began to explore options for an appropriate enterprise solution to facilitate data collection. Delays in making that decision have had a cascading effect on fully staffing its management support office, as well as defining the roles, responsibilities, and relationships between this office, the military departments, and other stakeholders. Continued delays in making a decision increase the risk that DOD will remain unable to collect and analyze service contract data and develop associated business processes in a manner that supports workforce and budget planning. Conversely, choosing a path forward, providing a rationale for that choice, and developing a plan of action with implementation timeframes and milestones could help the department move toward an environment in which it can stop endlessly agonizing on whether to use ECMRA or an alternative system and focus on what data to collect and how best to use that data once collected. As we concluded in January 2011, the real benefit of the inventory will ultimately be measured by its ability to inform decision making. We further noted that the absence of a way forward was hindering the achievement of this objective. More than five years later, those conclusions remain unchanged. We are not making new recommendations in this report. We provided a draft of this report to the Department of Defense for comment. In its written comments, which are reprinted in appendix III, DOD stated that it is committed to improving its processes surrounding the inventory and to working to close the eight open recommendations discussed in the report. DOD also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense; the Secretaries of the Army, Air Force, and Navy; the Under Secretary of Defense for Personnel and Readiness; and the Under Secretary of Defense for Acquisition, Technology, and Logistics. In addition the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or dinapolit@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. In November 2014, GAO reported on the status of efforts by the military departments to develop plans with enforcement mechanisms to use the inventory of contracted services to inform management decisions in three primary areas: strategic workforce planning; workforce mix; and budgeting. In November 2015, we updated these findings. In those reports, we determined that the military departments generally had not developed plans and enforcement mechanisms to use the inventory to inform these decisions, as required by subsection 2330a(f) of title 10 of the U.S. Code. Our current work found minimal updates to these guidance with specific reference to use of the inventory of contracted services for management decisions. The primary exception relates to budgeting, where the Army’s Command Program Guidance memorandum for the Fiscal Years 2018-2022 Program Objective Memorandum requires the Army to use the inventory review when formulating budget requests for contracted services. The following summarizes the degree to which the Department of Defense (DOD) and the military departments’ guidance currently require the use or consideration of the inventory in these areas and identifies where DOD or the military departments have updated their guidance since our November 2015 report. Updates since our November 2015 report are italicized in the following tables. The Under Secretary of Defense for Personnel and Readiness (USD(P&R)) has overall responsibility for developing and implementing DOD’s strategic workforce plan to shape and improve DOD’s civilian workforce, including an assessment of the appropriate total force mix. USD(P&R) issued guidance that designated responsibility for the development of the strategic workforce plan to the Deputy Assistant Secretary of Defense for Civilian Personnel Policy, but did not require use of the inventory. The guidance pre-dates the statutory requirement to use the inventory to inform strategic workforce planning. For example, the Fiscal Years 2013-2018 Strategic Workforce Plan, the most recent plan available at the time of our November 2014 and 2015 reviews, stated that DOD’s plans for identifying and assessing workforce mix will leverage the inventory of contracted services, but did not provide any additional details on using the inventory. None of the three military departments had developed a statutorily required plan or enforcement mechanism to use the inventory of contracted services for strategic workforce planning and generally they had not developed guidance or processes for these purposes (see table 4). DOD has two department-wide policies for determining workforce mix— DOD Directive 1100.4 and DOD Instruction 1100.22—but neither currently requires the use of the inventory to inform workforce mix planning. DOD Directive 1100.4, dated February 2005, provides general guidance concerning determination of manpower requirements, managing resources, and manpower affordability. According to USD(P&R) officials, revisions to this directive, which are currently under review, will explicitly require use of the inventory to inform budgeting and total force management decisions. DOD Instruction 1100.22, dated April 2010, provides manpower mix criteria and guidance for determining how individual positions should be designated based on the work performed. This instruction does not direct the military departments to develop a plan to use the inventory to inform management decisions, as DOD issued it before the enactment of the requirement for developing such plans. DOD’s primary insourcing guidance is reflected in April 4, 2008, and May 28, 2009, memorandums. These memorandums reiterate statutory requirements by calling for DOD components and the military departments to use the inventory of contracted services to identify functions for possible insourcing and to develop a plan for converting these functions within a reasonable amount of time. Among the military departments, however, only Army has guidance and a process that requires use of the inventory of contracted services for insourcing. However, the military departments have not issued guidance for managing workforce mix that requires the use of the inventory of contracted services (see table 5). DOD’s Financial Management Regulation provided, among other things, guidance to the military departments on budget formulation and presentation; however, these regulations did not require the military departments to use the inventory in formulating and presenting their budgets. At the military department level, the Air Force had issued additional instructions in terms of budget formulation and presentation. However, the Air Force’s guidance did not require the use of the inventory. More recently, the Army’s February 2016 guidance, Command Program Guidance Memorandum for the Fiscal Years 2018-2022 Program Objective Memorandum, requires the use of the inventory review certification in budget formulation. The Comptroller issued supplemental guidance requiring, among other things, that the military departments and defense components provide information on the number of FTEs as required under section 235 of title 10 of the U.S. Code, but this guidance did not require reporting the amount of funding requested for contracted services. The Comptroller guidance for budget submissions from all components instructed DOD components to ensure that contractor FTEs reported in the budget exhibit were consistent with those in DOD’s inventory of contracted services. Both Navy and Air Force officials reported that they used the inventory of contracted services to estimate the number of contractor FTEs for inclusion in their budget request. The Army budget office could not identify how the Army estimated FTEs in the Army’s budget submission (see table 6). In addition to the contact named above, Janet McKelvey (Assistant Director); Emily Bond; Virginia Chanley; Mackenzie Doss; Kristine Hassinger; Julia Kennon; Scott Purdy; and Roxanna Sun made significant contributions to this review.

Summary: DOD is the government's largest purchaser of contractor-provided services. In 2008, Congress required DOD to compile and review an annual inventory of its contracted services to identify the number of contractors performing services and the functions contractors performed. In 2011, Congress required DOD to use that inventory to inform certain decision-making processes, including workforce planning and budgeting. GAO has previously reported on the challenges DOD faces in compiling, reviewing, and using the inventory. Since 2011, GAO made 13 recommendations intended to improve DOD's use of the inventory. Of these, DOD has yet to fully address 8 open recommendations. Congress included a provision in statute for GAO to report on DOD's required reviews and plans to use the inventory. This report assesses the extent to which DOD components (1) reviewed contracts and activities in the fiscal year 2014 inventory of contracted services, and (2) developed plans to use the inventory for decision making. GAO reviewed relevant laws and guidance and 40 components' inventory review certification letters, and interviewed DOD acquisition, manpower, and programming officials. In fiscal year 2014, 40 Department of Defense (DOD) components in total certified that they had conducted an inventory review. Components are required by DOD guidance to address six elements in their certification letters, including, for example, identifying any inherently governmental functions and unauthorized personal services contracts. More components—21 out of 40—addressed all of the required review elements compared to prior years. However, DOD components may continue to underreport the extent to which contractors were providing services that are closely associated with inherently governmental functions, a key review objective to help ensure that DOD has proper oversight in place. For example, GAO's analysis indicates that DOD obligated about $28 billion for contracts in 17 categories—such as professional and management support services—that the Office of Federal Procurement Policy and GAO identified as more likely to include closely associated with inherently governmental functions. In comparison, components identified a total of $10.8 billion in obligations or dollars invoiced for contracts that included work identified as closely associated with inherently governmental functions—either within the 17 categories or for any other category of service. Most of these functions were identified by the Army using its long-standing review process. The military departments have not yet developed plans to use the inventory to inform workforce mix, strategic workforce planning, and budget decision-making processes, as statutorily required. DOD has made some recent progress on requiring components to identify an accountable official to lead efforts to develop plans and establish processes for using their inventories in decision making, a step GAO recommended in November 2014. However, DOD faces continued delays in deciding on the path forward for its underlying inventory data collection system, staffing its inventory management support office, and formalizing the roles and responsibilities of that office and stakeholders (see figure). GAO previously recommended that DOD address these issues to improve the usefulness of the inventory. DOD concurred with these recommendations but has not yet addressed them. These continued delays hinder DOD's ability to use the inventory of contracted services as intended, including using the inventory data to inform workforce and budget decision-making processes. GAO is not making new recommendations in this report. In its comments, DOD noted that it intends to address GAO's eight open recommendations, including those related to determining its approach for compiling the inventory and defining the roles and responsibilities of a key support office and stakeholders.