Over the past decade, DOD has increasingly relied on contractors to provide a range of mission-critical services from operating information technology systems to providing logistical support on the battlefield. The growth in spending on services clearly illustrates this point. DOD’s obligations on service contracts, expressed in constant fiscal year 2006 dollars, rose from $85.1 billion in fiscal year 1996 to more than $151 billion in fiscal year 2006, a 78 percent increase. More than $32 billion—or 21 percent—of DOD’s obligations on services in fiscal year 2006 were for professional, administrative, and management support contracts. Overall, according to DOD, the amount obligated on service contracts exceeded the amount the department spent on supplies and equipment, including major weapon systems. Several factors have contributed to the growth in service contracts. For example, after the September 2001 terrorist attacks, increased security requirements and the deployment of active duty and reserve personnel resulted in DOD having fewer military personnel to protect domestic installations. For example, the U.S. Army awarded contracts worth nearly $733 million to acquire contract guards at 57 installations. Growth was also caused by changes in the way DOD acquired certain capabilities. For example, DOD historically bought space launch vehicles, such as the Delta and Titan rockets as products. Now, under the Evolved Expendable Launch Vehicle program, the Air Force purchases launch services using contractor-owned launch vehicles. Similarly, the Air Force and Army turned to service contracts for simulator training primarily because efforts to modernize existing simulator hardware and software had lost out in the competition for procurement funds. Buying training as a service meant that operation and maintenance funds could be used instead of procurement funds. Overall, however, our work found that to a large degree, this growth simply happened and was not a managed outcome. As the amount and complexity of contracting for services have increased, the size of the civilian workforce has decreased. More significantly, DOD carried out this downsizing without ensuring that it had the requisite skills and competencies needed to manage and oversee service acquisitions. Consequently, DOD is challenged in its ability to maintain a workforce with the requisite knowledge of market conditions, industry trends, and the technical details about the services they procure; the ability to prepare clear statements of work; and the capacity to manage and oversee contractors. Participants in an October 2005 GAO forum on Managing the Supplier Base for the 21st Century commented that the current federal acquisition workforce significantly lacks the new business skills needed to act as contract managers. In June 2006, DOD issued a human capital strategy that acknowledged that DOD’s civilian workforce is not balanced by age or experience. DOD’s strategy identified a number of steps planned over the next 2 years to more fully develop a long-term approach to managing its acquisition workforce. For example, DOD’s Director of Defense Procurement and Acquisition Policy testified in January 2007 that DOD has been developing a model that will address the skills and competencies necessary for DOD’s contracting workforce. That model will be deployed this year. The Director stated that this effort would allow DOD to assess the workforce in terms of size, capability, and skill mix, and to develop a comprehensive recruiting, training, and deployment plan to meet the identified capability gaps. A report we issued in November 2006 on DOD space acquisition provides an example of downsizing in a critical area—cost estimating. In this case, there was a belief within the government that cost savings could be achieved under acquisition reform initiatives by reducing technical staff, including cost estimators, since the government would be relying more on commercial-based solutions to achieve desired capabilities. According to one Air Force cost-estimating official we spoke with, this led to a decline in the number of Air Force cost estimators from 680 to 280. According to this official, many military and civilian cost-estimating personnel left the cost-estimating field, and the Air Force lost some of its best and brightest cost estimators. In turn, because of the decline in in-house resources, space program offices and Air Force cost-estimating organizations are now more dependent on support from contractors. For example, at 11 space program offices, contractors accounted for 64 percent of cost- estimating personnel. The contractor personnel now generally prepare cost estimates while government personnel provide oversight, guidance, and review of the cost-estimating work. Reliance on support contractors raises questions from the cost-estimating community about whether numbers and qualifications of government personnel are sufficient to provide oversight of and insight into contractor cost estimates. Turning to Iraq, DOD has relied extensively on contractors to undertake major reconstruction projects and provide support to troops in Iraq. DOD is responsible for a significant portion of the more than $30 billion in appropriated reconstruction funds and has awarded and managed many of the large reconstruction contracts, such as the contracts to rebuild Iraq’s oil, water, and electrical infrastructure, as well as to train and equip Iraqi security forces. Further, U.S. military operations in Iraq have used contractors to a far greater extent than in prior operations to provide interpreters and intelligence analysts, as well as more traditional services such as weapons systems maintenance and base operations support. These services are often provided under cost-reimbursement-type contracts, which allow the contractor to be reimbursed for reasonable, allowable, and allocable costs to the extent prescribed in the contracts. Further, these contracts often contain award fee provisions, which are intended to incentivize more efficient and effective contractor performance. If contracts are not effectively managed and given sufficient oversight, the government’s risk is likely to increase. For example, we have reported that DOD needs to conduct periodic reviews of services provided under cost-reimbursement contracts to ensure that services are being provided and at an appropriate level and quality. Without such a review, the government is at risk to pay for services it no longer needs. Our work, along with that of the Inspectors General, has repeatedly found problems with the practices DOD uses to acquire services. Too often, the department obtains services based on poorly defined requirements and inadequate competition. Further, DOD’s management and use of contractors supporting deployed forces suffers from the lack of clear and comprehensive guidance, among other shortfalls. Similarly, DOD does not always oversee and manage contractor performance, in part due to capacity issues, once a contract is in place. Many of these problems show up in the department’s use of other agencies’ contracts. Collectively, these problems expose DOD to unnecessary risk, complicate efforts to hold DOD and contractors accountable for poor acquisition outcomes, and increase the potential for fraud, waste, or abuse of taxpayer dollars. Poorly defined or broadly described requirements have contributed to undesired service acquisition outcomes. To produce desired outcomes within available funding and required time frames, DOD and its contractors need to clearly understand acquisition objectives and how they translate into the contract’s terms and conditions. The absence of well-defined requirements and clearly understood objectives complicates efforts to hold DOD and contractors accountable for poor acquisition outcomes. Contracts, especially service contracts, often do not have definitive or realistic requirements at the outset needed to control costs and facilitate accountability. This situation is illustrated in the following examples: In June 2004, we found that during Iraqi reconstruction efforts, when requirements were not clear, DOD often entered into contract arrangements that introduced risks. We reported that DOD often authorized contractors to begin work before key terms and conditions, such as the work to be performed and its projected costs, were fully defined. In September 2006, we reported that, under this approach, DOD contracting officials were less likely to remove costs questioned by auditors if the contractor had incurred these costs before reaching agreement on the work’s scope and price. In one case, the Defense Contract Audit Agency questioned $84 million in an audit of a task order for an oil mission. In that case, the contractor did not submit a proposal until a year after the work was authorized, and DOD and the contractor did not negotiate the final terms of the contract until more than a year after the contractor had completed the work. We will issue a report later this year on DOD’s use of undefinitized contract actions. In July 2004, we noted that personnel using the Army’s Logistics Civil Augmentation Program (LOGCAP) contract in Iraq, including those who may be called upon to write statements of work and prepare independent government cost estimates, had not always received the training needed to accomplish their missions. We noted, for example, the statement of work required the contractor to provide water for units within 100 kilometers of designated points but did not indicate how much water needed to be delivered to each unit or how many units needed water. Without such information, the contractor may not be able to determine how to meet the needs of the Army and may take unnecessary steps to do so. Further, we have reported that contract customers need to conduct periodic reviews of services provided under cost-reimbursable contracts to ensure that services provided are supplied at an appropriate level. Without such a review, the government is at risk of paying for services it no longer needs. For example, the command in Iraq lowered the cost of the LOGCAP contract by $108 million by reducing services and eliminating unneeded dining facilities and laundries. Competition is a fundamental principle underlying the federal acquisition process. Nevertheless, we have reported on the lack of competition in DOD’s acquisition of services since 1998. We have reported that DOD has, at times, sacrificed the benefits of competition for expediency. For example, we noted in April 2006 that DOD awarded contracts for security guard services supporting 57 domestic bases, 46 of which were done on an authorized, sole-source basis. The sole-source contracts were awarded by DOD despite recognizing it was paying about 25 percent more than previously paid for contracts awarded competitively.