In part to improve the information available and management of DOD’s acquisition of services, 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. The information DOD is to collect includes, among other things, the services purchased, the total dollar amount of the purchase, the form of contracting action used to make the purchase, and the extent of competition provided in making the purchase. In 2008, Congress amended section 2330a 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 full 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 section 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) submits 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 2014, the most recent submitted on August 31, 2015 (see table 1). Since DOD implemented the department-wide inventory of contracted services, 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 order, 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. Section 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 after an inventory is 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 on 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 on 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. Further, section 808 of the National Defense Authorization Act for Fiscal Year 2012 required DOD to issue guidance requiring the components to eliminate contractor positons identified as being responsible for performing inherently governmental functions and reduce by 10 percent the funding for contracts for the performance of functions closely associated with inherently governmental in fiscal years 2012 and 2013. DOD issued guidance in June 2012 instructing components to rely on the annual inventory review to demonstrate compliance with these requirements, using the fiscal year 2011 inventory review as the baseline for reductions. However, we found in December 2014 that the annual inventory review did not include the obligation data necessary to establish a baseline for reductions and recommended that DOD identify additional data sources to corroborate data reported in the annual inventory review. DOD concurred with our recommendation. In September 2015, we found the Comptroller intended to measure these reductions based on the advisory and assistance service obligations in the fiscal year 2017 budget submission. Our analysis found that using these revised measures, the military departments achieved the required funding reductions. In addition, section 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 possible 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. We have issued several reports on DOD’s efforts to compile and review its inventory of contracted services, including initiatives to standardize contractor manpower data collection across the department. For example, in April 2012 we found that DOD issued a plan in November 2011 to develop a common technology solution that would allow the department to collectively meet the inventory requirements and planned to have the system available to help inform the 2013 inventory of contracted services with full reporting by the fiscal year 2016 inventory. To achieve a uniform approach to collecting contractor manpower data, USD(P&R) and USD(AT&L) issued a joint memorandum in November 2012 that reiterated its goal for all components to report contractor manpower data using a common system, which it termed the Enterprise-wide Contractor Manpower Reporting Application (ECMRA). In May 2013, we reported that the Navy and Air Force had each taken steps to develop their own interim system to collect and store contractor manpower data based on the Army’s existing CMRA system. In May 2014, we reported that DOD fielded the last of the four CMRA systems for the defense agencies in September 2013. Most recently, in November 2014, we found DOD continued to lack a plan with timeframes and milestones to implement a common contractor manpower reporting system and faced continued delays in doing so. Additionally, we reported that USD(P&R) initiated a strategic review to assess all data collection options, raising the question of whether DOD would continue to establish a common data system, ECMRA, as it indicated it intended to do in a November 2012 memorandum. Noting that continued delays in developing an implementation plan for a common data system increased the risk that DOD would be unable to collect the statutorily required data needed to serve as the basis for DOD’s inventory process, we recommended that USD(P&R) approve a plan of action, with timeframes and milestones, for rolling out and supporting a department- wide data collection system as soon as practicable following the strategic review. Further, should a decision be made to use or develop a system other than ECMRA, we recommended that USD(P&R) provide a documented rationale for doing so and assure that the new approach will provide statutorily required data. DOD concurred with these recommendations. Additionally, we found that the military departments had not developed plans with enforcement and approval mechanisms to facilitate the use of the inventory in management decisions, including workforce planning and budgeting and that the responsibility for developing such plans was not clearly assigned. Consequently, to help ensure the inventory is integrated into key management decisions, as statutorily required, we recommended that the military departments appoint an accountable official within their departments with responsibility for leading and coordinating efforts across manpower, budgeting, and acquisition functional communities and, as appropriate, revise guidance, develop plans and enforcement mechanisms, and establish processes. DOD concurred, but had not done so at the time we began our current work. We discuss the status of DOD’s efforts in this report. A listing of GAO’s prior work on DOD’s inventory of contracted services may be found in appendix IV. We found that DOD components’ 2013 inventory review certifications better addressed required reporting elements than in prior years; however, for the second consecutive year, the Air Force, which accounts for about 20 percent of DOD’s obligations for contracted services, did not submit a certification letter. Further, DOD may be understating the number of contractors performing closely associated with inherently governmental functions. For example, the Army identified nearly 80 percent of its contracts for certain types of services as including such functions. The Navy and other defense components identified 13 percent of their contracts as doing so for similar categories of services.