Beginning with the National Defense Authorization Act for Fiscal Year 2006, Congress required the Secretary of Defense to issue guidelines requiring DOD to consider using federal employees to perform work that was currently being performed or would otherwise be performed under DOD contracts. Under the guidelines, special consideration was given to contracts that had been performed by federal government employees on or after October 1, 1980, were associated with the performance of inherently governmental functions, had not been awarded on a competitive basis, or were determined to be poorly performed due to excessive costs or inferior quality. The National Defense Authorization Act for Fiscal Year 2008 codified at section 2463 of title 10 of the United States Code (U.S. Code) revised the guidelines and procedures for use of civilian employees to perform DOD functions. This section directed the Under Secretary of Defense for Personnel and Readiness (P&R) to devise and implement guidelines and procedures to ensure that consideration was given to using, on a regular basis, DOD civilian employees to perform new functions. In addition, the guidelines and procedures were to ensure that functions that were performed by contractors and could be performed by DOD civilian employees were given the same consideration. Congress also directed that the guidelines and procedures may not include any specific limitation or restriction on the number of functions or activities that may be converted to performance by DOD civilian employees. The act further provided that DOD may not conduct a public-private competition prior to in-sourcing such functions. The act also added a new section describing the functions that were to receive special consideration from DOD when considering the use of DOD civilian employees. Additionally, the act required special consideration be given to a new requirement that is similar to a function previously performed by DOD civilian employees or is a function closely associated with the performance of an inherently governmental function. Pub. L. No. 110-181, § 807 (2008). performance of the activity. The National Defense Authorization Act for Fiscal Year 2011 again amended section 2330a of title 10 of the U.S. Code. Among other things the act now requires DOD to report the number of contractor employees, expressed as full-time equivalents for direct labor, using direct labor hours and associated cost data collected from contractors (except that estimates may be used where such data is not available and cannot reasonably be made available in a timely manner for the purpose of the inventory). Section 2330a (e) of title 10 of the U.S. Code requires each Secretary of a military department or head of a defense agency to review this annual inventory for several purposes, one of which is to identify activities that should be considered for conversion to performance by DOD civilian employees pursuant to section 2463 of title 10 of the U.S. Code. In turn section 2463 requires the Secretary of Defense to make use of the 2330a inventory for the purpose of identifying functions that should be considered for performance by DOD civilian employees. Under DOD’s policy for determining the appropriate mix of military and DOD civilians and contractor support, risk mitigation shall take precedence over cost savings when necessary to maintain appropriate control of government operations and missions. This policy provides manpower mix criteria for assessing which functions warrant performance by military or civilian personnel due to their associated risks, and which functions will therefore be considered exempt from performance by contractor support. DOD issued in-sourcing guidance in April 2008 and again in May 2009 to assist components in implementing these legislative According to the May 2009 guidance, DOD components requirements.should first confirm that a particular mission requirement is still valid and enduring; that is, that DOD will have a continued need for the service being performed. If the requirement is still valid, the component should consider in-sourcing the function. If the component determined that the function under review was inherently governmental or exempt from private sector performance no cost analysis was required. Possible rationales to in-source include the following, according to the May 2009 in-sourcing guidance: The function is inherently governmental; that is, the function is so closely related to the public interest as to require performance by government employees. The function is exempt from private sector performance to support the readiness or workforce management needs of DOD. According to DOD’s policy for determining the appropriate mix of military, DOD civilians, and contractor support, a function could be exempt from private sector performance for a variety of reasons, including functions exempt for career progression reasons, continuity of infrastructure operations, and mitigation of operational risk. The contract is for unauthorized personal services. Special authorization is required for DOD to engage in personal services contracts, which create a direct employer/employee relationship between the government and the contractor’s personnel. There are problems with contract administration due to a lack of sufficiently trained and experienced officials available to manage and oversee the contract. Other than in-sourcing, OUSD (P&R) officials told us that DOD may be able to address the above circumstances by, among other approaches, restructuring the contract or changing the way the contract is overseen. DOD’s guidance does not require components to prepare cost estimates when they cite one of the above reasons as the basis for their in-sourcing decision. In situations in which none of the factors cited above are applicable, DOD’s guidance instructs components to provide “special consideration” as discussed above, and if DOD civilians could perform the work, conduct a cost analysis to determine whether DOD civilians were the lowest-cost provider. According to a December 2009 in-sourcing plan submitted to Congress, DOD based this requirement on section 129a of title 10 of the U.S. Code, which requires DOD to determine the least costly personnel consistent with military requirements and other needs of the department. Thus, DOD components may also in-source for cost reasons when the work could otherwise be performed by a private contractor. DOD stated in its fiscal year 2010 budget submission to Congress that it expected to save $900 million in fiscal year 2010 from in-sourcing. To support the in-sourcing initiative, in April 2009 the Office of the Under Secretary of Defense (Comptroller) issued a budget decision which decreased funding for support service contracts and increased funding for new civilian authorizations across DOD components. In December 2009, DOD issued a report to Congress on its planned fiscal year 2010 in-sourcing efforts, stating that after component reviews, the department planned to create as many as 17,000 new civilian authorizations as a result of in-sourcing in fiscal year 2010. In August 2010, the Secretary of Defense stated that he was not satisfied with the department’s progress in reducing over-reliance on contractors. Representatives of OUSD (P&R) and the Office of the Under Secretary of Defense (Comptroller) told us that although DOD avoided $900 million in costs for contracted support services in fiscal year 2010 due to the budget decision to reduce funds associated with in-sourcing, total spending across all categories of service contracts increased in fiscal year 2010 by about $4.1 billion. To accelerate the process and achieve additional savings, the Secretary directed a 3-year reduction in funding for service support contracts categorized by DOD as contracted support services. He also directed a 3-year freeze on the level of DOD civilian authorizations at OSD, the defense agencies, and the Combatant Commands, and stated that with regard to in-sourcing, no more DOD civilian authorizations would be created after the then-current fiscal year to replace contractors. He also noted that some exceptions could be made for critical areas such as the acquisition workforce. Further, the statutory requirement to regularly consider in-sourcing contracted services remains in effect, and DOD officials told us that, accordingly, in-sourcing continues in the department, though on a more limited basis. See figure 1 for a timeline of key events related to DOD in-sourcing. Additionally, section 115b of title 10 of the U.S. Code requires DOD to annually submit to the defense committees a strategic workforce plan to shape and improve its civilian workforce. Among other requirements, the plan is to include an assessment of the appropriate mix of military, civilian, and contractor personnel capabilities. OUSD (P&R) is responsible for developing and implementing the strategic plan in consultation with the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics. Since 2001, we have listed federal human capital management, of which strategic workforce planning is a key part, as a governmentwide high-risk area. Similarly, we have identified challenges with having a sufficient number of adequately trained acquisition and contract oversight personnel as a factor in continuing to identify DOD contract management as a DOD-specific high-risk area. DOD’s September 2011 in-sourcing report addressed the legislative requirements to report the service or agency involved with each of its fiscal year 2010 in-sourcing actions and the rationale for each action, but did not report the number of contractor employees whose functions were in-sourced, as specified in the act. DOD stated that it could not report the number of contractor employees because it contracts for services, rather than hiring contractor employees directly. An OUSD (P&R) official noted that one of the data elements Congress has required DOD to include in its annual inventories of contracted services is the number of contractor employees, expressed as full-time equivalents, that performed each activity, and DOD is in the process of implementing a revised approach to collect these data directly from contractors. DOD’s report identified nearly 17,000 newly created civilian authorizations as a result of in-sourcing actions in fiscal year 2010, and for each of these new authorizations, the department identified the DOD component involved with the decision.