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

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