Section 808 of the NDAA for fiscal year 2012, as amended by section 802 of the NDAA for fiscal year 2014, limited DOD’s total obligations for contract services in fiscal years 2012 through 2014 to the amount requested for these services in the fiscal year 2010 President’s Budget Request. The limit does not apply to contract services for military construction, research and development, and services funded for overseas contingency operations. Additionally, it provides for two adjustments to the limit above fiscal year 2010 budgeted levels. DOD may adjust spending above 2010 levels to account for (1) funding increases associated with contract services that were transferred from overseas contingency operations to the base budget and (2) the cost of additional civilian personnel positions over fiscal year 2010 levels. The spending limit identified in the act applies to DOD in its entirety; therefore, individual components—military departments and defense agencies—may exceed their individual targets but DOD would still be in compliance with the law if total obligations for contract services across the entire department were less than the aggregate limit. DOD identified an aggregate spending limit of $55.75 billion for fiscal year 2014. Section 813 of the NDAA for fiscal year 2015 extended the aggregate spending limit through fiscal year 2015. Congress has also enacted legislation to improve the availability of information on DOD’s acquisition of services and to help the department make more strategic decisions about the appropriate workforce mix of military, civilian, and contractor personnel. In fiscal year 2002, Congress enacted section 2330a of title 10 of the U.S. Code, which required the Secretary of Defense to establish a data collection system to provide management information on each purchase of services by a military department or defense agency. In 2008, Congress amended section 2330a of title 10 of the U.S. Code to require the Secretary of Defense to submit an annual inventory of contracted services performed for or on behalf of DOD during the preceding fiscal year. This annual inventory submission is to include, among other things, the number of contractor full time equivalents and the associated direct labor cost for these positions. More recently, section 955 of the NDAA for fiscal year 2013 required the Secretary of Defense to ensure that the civilian and service contractor workforces are appropriately sized to support and execute the National Military Strategy and to develop an efficiencies plan for those workforces. Section 955 further requires that the efficiencies plan ensures that total funding reductions for the civilian and service contractor workforces are commensurate with reductions in military end strength. We have on-going work assessing DOD’s compliance with section 2330a as well as DOD’s implementation of section 955 and plan to report the final results in fiscal year 2016. Following the submission of the inventory, section 2330a(e) of title 10 of the U.S. Code requires the secretaries of the military departments and heads of the defense agencies to complete a review of the contracts identified in the inventory to ensure, among other things, that the activities do not include inherently governmental functions—which are those that require discretion in applying government authority—such as the determination of budget policy. The review should also ensure that to the maximum extent practicable, the activities do not include any closely associated with inherently governmental functions, which are those that may be at risk of becoming inherently governmental due to the manner in which the contractor performs the work, among other things. Upon completion of this review, DOD guidance instructs the secretaries of the military departments and heads of the defense agencies to submit an inventory review certification letter to the Office of Personnel and Readiness that outlines the results of the review and any corrective actions to be taken to ensure that contractors are not performing inherently governmental functions and to monitor the use of contractors for closely associated with inherently governmental functions. Section 808 of the NDAA for fiscal year 2012 further reinforced those provisions by requiring DOD to issue guidance instructing components to reduce funding by 10 percent for fiscal years 2012 and 2013 for contracts identified with personnel performing closely associated with inherently governmental and staff augmentation functions. These functions may include personal services or other positions that may put the government at risk of contractors inappropriately influencing government decisions. Unlike the aggregate DOD spending limit, the statutory requirement for guidance on reductions in funding for closely associated with inherently governmental functions and staff augmentation are directed to each component; therefore, the reductions are expected to take place at each component, rather than an aggregate reduction across the department. Through subsequent revisions of the law, Congress extended the time period for DOD to implement the full 20 percent reduction for both closely associated with inherently governmental and staff augmentation functions through fiscal year 2015. Fiscal years 2014 and 2015 are also referred to as carryover years—meaning that whatever required reductions that DOD did not achieve in fiscal years 2012 and 2013 are required to be taken in 2014 or 2015. In December 2014, we reported on DOD’s implementation of the section 808 limitations in fiscal years 2012 and 2013. Specifically, we found DOD exceeded the spending limit in fiscal year 2012 and adhered to the limit in fiscal year 2013. However, we also identified issues with the DOD Comptroller office’s calculation of the spending limit which resulted in an overstated limit in fiscal years 2012 and 2013. For example, in both fiscal years 2012 and 2013, the Comptroller included approximately $248 million in research and development budgeted amounts in the spending limit, despite the law excluding such services from the spending limit. In addition, the Comptroller office’s calculation of the civilian workforce adjustment was not consistently applied, further overstating the limit. As a result, we recommended that the Comptroller’s office update its methodology to determine compliance with aggregate spending limit to correct these errors. DOD concurred with this recommendation and has taken steps to address it for fiscal year 2015, as discussed later in this report. After adjusting for these errors, we found that DOD obligated $1.72 billion more than the limit in fiscal year 2012 and about $500 million less than the limit in fiscal year 2013. In our December 2014 report, we also found that each of the military departments exceeded their respective Comptroller-provided targets in fiscal year 2012. The departments implemented fiscal controls in fiscal year 2013, to varying degrees, which helped the Air Force and Navy adhere to their targets. However, the Army still exceeded its target by more than $2 billion in fiscal year 2013. We concluded that significant discrepancies between the military departments’ adherence to obligation targets for fiscal year 2013 signaled that improvements could be made to better manage contract services obligations and recommended that the Secretary of Defense evaluate the fiscal controls used by the military departments to identify effective practices to improve the management of contract services. DOD agreed with this recommendation and while the Comptroller’s office has not taken action to implement it, the military departments have improved implementation of fiscal controls as discussed later in this report. We also have ongoing work that will further examine DOD’s planning, programming and budgeting process for contracted services and plan to report the final results in 2016. We also found that DOD lacked the data necessary to determine if it implemented the required funding reductions for contracts with closely associated with inherently governmental and staff augmentation functions. Specifically, DOD issued guidance in June 2012 instructing components to rely on the inventory of contracted services to measure funding reductions for contracts with closely associated with inherently governmental functions. However, we found that the components’ annual inventory reviews did not include information necessary to measure a funding reduction in these functions, such as comparable obligation data. Further, we found that the guidance lacked clarity in how reductions in staff augmentation funding should be implemented and measured. The guidance noted that these funding reductions were factored into budget requests for fiscal years 2012 and 2013, but did not specify the amounts of these budgeted reductions or the data source that should be used to determine if the reduction was achieved. DOD updated its inventory guidance in May 2014, instructing components to identify the steps taken—supported with appropriate documentation— to demonstrate compliance with the required reductions. However, we found that the supplemental guidance did not provide components with any additional clarification in how to measure the reductions given the lack of data collected through past inventories. We also found that one measure that could be used to determine compliance was the advisory and assistance services budget category which includes many of the types of contractor services that are considered closely associated with inherently governmental and staff augmentation functions. As a result, we recommended that DOD identify additional data sources beyond the inventory of contracted services to help ensure that funding reductions called for in the law are implemented. DOD concurred with our recommendation. Moreover, section 813 of the NDAA for fiscal year 2015 facilitated DOD’s implementation of our recommendation, encouraging DOD to use other data sources, such as advisory and assistance services, to measure compliance with closely associated with inherently governmental and staff augmentation funding reductions. Similarly, in April 2015, the DOD Inspector General found that the information included in the inventory was not sufficient to determine whether funding reductions were met and also recommended that DOD clarify how reductions should be reported. DOD obligated $54.6 billion, or $280 million less than the limit on contract services in fiscal year 2014. In addition, the Comptroller’s office improved planning and oversight of contract services for fiscal year 2014 by seeking input when setting spending targets and implementing a waiver request process to allow for adjustments during the year. These steps helped ensure that DOD adhered to the aggregate limit; but adherence to spending targets varied by the military departments. While, the Army and Navy exceeded the Comptroller-provided targets due, in part, to a lack of accurate budget and obligation data for contract services, the Air Force did not. However, Army and Navy budget officials identified additional steps they plan to take to better manage the contract services spending limit in the future. DOD adhered to the contract services spending limit for fiscal year 2014, obligating $54.6 billion for contract services.