Federal agencies spent more than $235 billion in fiscal year 2001 to buy goods and services ranging from weapon systems and medical equipment to information technology services and the operation of government facilities. This is an 11 percent increase over the amount spent in 1997. This growth is expected to continue as federal agencies address emerging threats and acquire enhanced information technology. The significance of contracting in the federal government is reflected by the sheer magnitude and the degree to which contracting consumes agencies’ discretionary resources. Overall, contracting for goods and services accounted for about 24 percent of the government’s discretionary resources in fiscal year 2001. However, contract spending consumed between 34 percent and 73 percent of the discretionary resources available to the four largest acquisition spending federal agencies. Federal contracting increased by 11 percent during the 5-year period we studied, from about $213 billion in fiscal year 1997 to over $235 billion in fiscal year 2001. As shown in figure 1, DOD is the largest agency in terms of contracting dollars spent, accounting for about two-thirds of the government’s total spending on goods and services. In fiscal year 2001, DOD contracted for more than $152.6 billion of goods and services, or more than twice the amount spent by the next nine largest federal agencies combined. The three military departments—the Air Force, Army, and Navy—individually spend more than the largest civilian agency, the Department of Energy (DOE). From fiscal years 1997 through 2001, purchases of goods increased by 17 percent. This was due in large measure to DOD’s increased spending on weapon systems and other defense-related items. Overall, however, agencies continued to purchase far more services than goods. Purchases of services grew by about 11 percent, as agencies modernized their information systems and obtained various professional, administrative, and management support services. Nine of the 10 agencies we reviewed increased their spending on services. The other agency, the National Aeronautics and Space Administration (NASA), experienced a 4 percent decrease, reflecting significant reductions in spending for research and development and for professional, administrative, and management support services. As shown in figure 2, agencies varied in the degree to which they contracted for services. For example, DOE spent more than 98 percent of its contract dollars on services in fiscal year 2001, while the Department of Agriculture’s (USDA) spending for services accounted for only about 30 percent of its acquisition spending. The degree to which individual agencies contract for services underscores the importance of ensuring that service acquisitions are managed properly. For example, we noted in May 2001 that some service procurements were not being conducted efficiently, putting taxpayer dollars at risk. Last year, we reported that leading commercial companies had taken a strategic approach to acquiring services, which in turn resulted in significant cost savings and service improvements. Taking a strategic approach involves a range of activities—from developing a better picture of what the company is spending on services, to taking an enterprisewide approach to procuring services, to developing new ways of doing business. Based in part on our report, the National Defense Authorization Act For Fiscal Year 2002 required that DOD develop enhanced data collection and management processes for services acquisitions. Additionally, as will be discussed in greater detail in the next section, Congress and the administration are encouraging the use of performance-based approaches to acquiring services as a way of improving the acquisition of services. Agencies rely to various degrees on private vendors to provide the goods and services needed to carry out their missions and support their operations. Overall, contracting for goods and services accounted for 24 percent of the government’s discretionary resources in fiscal year 2001. For four agencies included in our review—DOE, NASA, GSA, and DOD— the acquisition function is central to accomplishing their mission-related goals. About 76 percent of DOE’s funds, for example, are spent on the management and operation of over 30 government-owned laboratories and other nuclear facilities. NASA contracts account for about 72 percent of its discretionary budget resources, and one of GSA’s primary missions is to help federal agencies procure goods and services. However, spending on contracts accounted for less than 23 percent at each of the other six agencies in our review, as shown in figure 3. Further growth in contract spending, at least in the short term, is likely given the President’s request for additional funds for defense and homeland security, agencies’ plans to update their information technology systems, and other factors. For example, the President’s fiscal year 2004 budget request reflects steady increases in DOD’s discretionary budget authority, as well as increases in the budgets of other agencies involved in homeland security. Additionally, the President’s budget request reflects increased investment in information technology both for new systems and for related support. Further, the administration’s emphasis on competitive sourcing could increase agencies’ reliance on services provided by the private sector. Competitive sourcing in the federal government is conducted under guidance provided in OMB Circular A-76, which outlines procedures for determining whether to perform a commercial activity with government employees or by contract. Additionally, the circular provides policy for standardizing how and when an agency competes a commercial activity with the private sector. OMB’s current 2-year goal is to compete 15 percent of the federal government’s commercial-type positions. This effort could result in significant increases in the number of service contracts, given that in the past the private sector has won over half of the competitions. The past decade has seen the emergence of several procurement trends that have changed the way the government acquires goods and services, as Congress and the administration have sought ways to simplify the acquisition process, shorten procurement times, reduce administrative burdens and costs, and improve acquisition outcomes. In particular, federal agencies are increasingly relying on contracts awarded by other federal agencies to obtain goods and services and have turned to using government purchase cards for many of their low dollar value procurements. The growth in these procurement methods has been dramatic, and is apparent in nearly every agency we reviewed. Additionally, agencies have begun to increase their use of commercial contracting methods and performance- based acquisition approaches. As we have reported previously, taking full advantage of these methods and approaches requires that agencies have adequate guidance and training, a strong internal control environment, and data that can be used by agency management to make informed decisions. Our work at selected agencies has found that these conditions have not always been present, thereby contributing to agencies missing opportunities to achieve savings, reduce administrative burdens, and improve acquisition outcomes. Federal agencies are increasingly using contracts and acquisition services offered by other agencies, a fact that is most notably demonstrated in the growth of GSA’s Federal Supply Schedule and governmentwide acquisition contracts (GWAC). These interagency contracts are being used in a variety of situations, from those in which a single agency provides limited contracting assistance to a more comprehensive approach in which the provider agency’s contracting officer handles all aspects of the procurement. Agencies charge users of these contracts a fee to cover administrative expenses. GSA’s schedule program enables federal agencies to quickly acquire goods and services, thereby helping them to, among other objectives, reduce lead times and lower administrative costs. GSA does this by awarding contracts to vendors and making these contracts available for use by other agencies. GWACs are intended to facilitate purchases of information technology-related products and services, such as network maintenance and technical support, systems engineering, and integration services. As shown in figure 4, sales under the schedule program have more than tripled over the past 5 years, increasing from $4.3 billion in fiscal year 1997 to about $14.4 billion in fiscal year 2001. Agency officials at each of the agencies we reviewed reported increases in their use of the schedules program over the past 5 years, driven largely by increased purchases of information technology and professional, administrative, and management support services. As shown in table 1, DOD and GSA, the largest users of the schedules program, accounted for about 75 percent of schedule sales in fiscal year 2001. GSA’s increased share is largely attributable to the growth of GSA’s Federal Technology Service, which places orders under the schedule for information technology services and equipment on behalf of other federal agencies. However, orders placed by the Federal Technology Service are counted as spending by GSA, rather than as spending by the federal agency that will ultimately receive the service or equipment. Agency officials also reported that their use of GWACs increased considerably over the 5-year period between fiscal years 1997 and 2001. For example, USDA reported an increase from about $5.1 million to $44 million, and Treasury reported an increase from $92 million to $155 million. Officials at the other eight agencies we reviewed reported that they also increased their use of GWACs; however, they could not provide detailed GWAC information because this spending was not an integral part of their management information systems. While GSA officials indicated that they have not modified the FPDS to collect specific information on GWAC spending, several officials at other agencies stated that they either are collecting or will begin to collect additional information on their agencies’ GWAC use. While use of these interagency contracting methods can allow agencies to meet their needs quickly, our past work has shown that agencies are not adequately adhering to guidelines on competition. Further, recent agency Inspector General reports noted that DOD, VA, and NASA personnel did not consistently follow procedures intended to promote competition or ensure fair and reasonable prices when using these interagency contract methods to acquire information technology services, medical equipment, or research and development projects. Purchase card spending has increased significantly governmentwide. This program provides federal agencies a low-cost and efficient means for quickly obtaining goods and services directly from vendors. Under the Federal Acquisition Regulation, the commercial purchase card is now the preferred method of paying for micropurchases. The purchase card may also be authorized to be used in greater dollar amounts and may be used to make payments under existing contracts.