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United States Government Accountability Office: 
Washington, DC 20548: 

May 27, 2011: 

Congressional Committees: 

Subject: OMB Service Contracts Inventory Guidance and Implementation: 

Federal agencies rely on a multisector workforce of federal employees 
and contractor personnel to perform services needed to carry out their 
missions. Determining whether to obtain services through insourcing 
with current or new federal employees, outsourcing with private-sector 
contractors, or sourcing with a combination of the two is an important 
economic and strategic decision essential to the federal government's 
effective and efficient use of taxpayer dollars. Since fiscal year 
2006, civilian agencies have obligated over $100 billion annually to 
obtain a range of services from contractors. Almost 80 percent of 
contract obligations made by civilian agencies in fiscal year 2010 
were for service contracts. Since the mid-1950s, the executive branch 
has encouraged federal agencies to obtain commercially available 
services from the private sector when outsourcing is cost effective. 
In 2009, however, the President issued a memorandum on government 
contracting that expressed concern about whether agencies have become 
overly reliant on contractors and have appropriately outsourced 
services.[Footnote 1] In particular, the President noted that the line 
between inherently governmental functions--those that must be 
performed by federal employees--and commercial activities that may be 
contracted for has been blurred.[Footnote 2] In the memorandum, the 
President directed the Office of Management and Budget (OMB) to lead a 
series of contracting-related efforts, including clarifying when 
outsourcing for services is appropriate. 

Over the last several years, Congress too has been concerned with 
agencies' reliance on contractors and has directed OMB and other 
federal agencies to examine issues related to the multisector 
workforce. For example, the Conference Report accompanying the 
Consolidated Appropriation Act for fiscal year 2010 cited the need for 
agencies to have complete and reliable information on the extent of 
their reliance on service contractors to help determine the proper use 
and balance of public employees and contractors to accomplish 
agencies' missions. In this regard, the Consolidated Appropriations 
Act, 2010, required civilian federal agencies to complete an annual 
inventory of their service contracts and review and analyze the 
information in the inventory to understand how contracted services are 
being used and whether contractors are being used in an appropriate 
manner.[Footnote 3] Civilian agencies were to submit to OMB their 
inventories by December 31, 2010, and also make public their fiscal 
year 2010 inventory by January 31, 2011. To aid civilian agencies in 
collecting the inventory information, the act further required that 
OMB develop and disseminate guidance by March 1, 2010, and report to 
Congress by July 31, 2010, the steps it took to support this effort. 
We were then required to report on the guidance issued and actions 
taken by OMB once it had issued the July 31, 2010, report. OMB has 
issued initial guidance to agencies, but as of May 26, 2011, it had 
not issued the required report to Congress. Additionally, by September 
30, 2011, we were required to report on the civilian agencies' initial 
implementation of the fiscal year 2010 service contracts inventory 

After waiting several months for OMB to issue the required July 2010 
report, we began work in December 2010 in anticipation of the report's 
completion. This schedule would have enabled us to follow on 
immediately with the work needed for our September 2011 report. Given 
the delay in the OMB report, we decided, in consultation with your 
office, to report now on the work we have done on OMB's guidance and 
the civilian agencies' service contract inventories. Thus, this report 
addresses the substance of both legislative requirements and helps 
form the basis for a report we are required to make on the agencies' 
progress in 2012. Accordingly, this report addresses (1) the steps OMB 
has taken to guide agencies as they prepare service contract 
inventories and (2) selected civilian agencies' experiences using 
OMB's guidance as they prepared the inventories and began to analyze 
the service contracts included in the inventories. 

To address our objectives, we reviewed OMB's November 2010 service 
contract inventory guidance and analyzed the extent to which it was 
consistent with the statutory requirements included in the act for 
executive agencies' service contract inventories.[Footnote 4] We 
interviewed OMB officials regarding their guidance to assist agencies 
in collecting the required service contract inventory data. We used 
Federal Procurement Data System--Next Generation (FPDS-NG) data to 
select nine civilian agencies for further review.[Footnote 5] The nine 
agencies were the Departments of Energy (DOE); Health and Human 
Services (HHS); Homeland Security (DHS); Housing and Urban Development 
(HUD; and Veterans Affairs (VA); the Federal Election Commission 
(FEC); the General Services Administration (GSA); the National 
Aeronautics and Space Administration (NASA); and the Small Business 
Administration (SBA). We selected six agencies with the highest 
amounts of fiscal year 2009 service contract obligations and three 
other agencies that had varying levels of service contract obligations 
for fiscal year 2009, including a large percentage of contracts in the 
special interest functions areas that OMB identified in its guidance. 
[Footnote 6] We also considered whether agencies had previously 
submitted inventories for the Federal Activities Inventory Reform 
(FAIR) Act of 1998.[Footnote 7] Collectively, the nine agencies we 
selected accounted for 66 percent of the fiscal year 2009 funds 
obligated on service contracts by civilian agencies. While our prior 
work has found problems with FPDS-NG data reliability, for purposes of 
this report we found FPDS-NG data to be sufficiently reliable for the 
purpose of reviewing whether the selected agencies' contract 
inventories were consistent with OMB's contract inventory guidance. 
[Footnote 8] We verified that the data elements required for fiscal 
year 2010 service contract inventories were present in FPDS-NG. We 
analyzed fiscal year 2010 contracting data from FPDS-NG to determine 
the differences in contracting activity that would be identified by 
following the statutory inventory requirements compared to using OMB's 
guidance. In addition, we interviewed officials from the nine agencies 
on their experiences implementing OMB's inventory guidance and 
collected and reviewed these agencies' fiscal year 2010 service 
contract inventories. We also queried the agencies after they began 
their initial analysis of the inventories to determine the progress 
being made. We conducted this performance audit from December 2010 to 
May 2011 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Results in Brief: 

OMB's November 2010 guidance required civilian agencies to use FPDS-NG 
data to address a number of the inventory requirements consistent with 
the Consolidated Appropriations Act; however, there are some key 
differences between the guidance and the act. In some instances, OMB 
increased the amount of information agencies were to report in their 
inventories relative to the statutory requirements and in other 
instances decreased it. OMB's November 2010 guidance set dollar 
thresholds for which contract actions are to be included in the 
inventories whereas the act did not. In addition, the way agencies 
were required to identify personal services contracts under OMB's 
guidance is different than what is required under the 
statute.[Footnote 9] The statute also requires several data elements--
such as the number of contractor employees--to be included in the 
inventories, but under OMB's guidance, the elements are not required 
to be included in the services contract inventories until fiscal year 
2011 because the data are not presently available. OMB is working to 
revise the FAR and expects the agencies to be in a better position to 
collect the data for fiscal year 2011. Under the proposed FAR 
revision, the collection of the remaining data elements will rely on 
contractor-reported information and will be phased in over a 4-year 
period. In addition, OMB does not yet have a process or system in 
place for collecting these additional data elements, but is working to 
integrate these data elements into a current modernization effort. 

All nine agencies included in our review submitted the inventories, 
and most found OMB's guidance sufficiently clear to compile the 
inventories as directed. One agency found the guidance less clear and 
its inventory varied from the guidance. Some agencies had some 
concerns with the required analysis of the inventories due to the 
large number of contract actions they would have to review and their 
limited resources. Nevertheless, as of April 2011, seven of the nine 
agencies had begun to review their inventories, and there were mixed 
opinions among agency officials on the usefulness of the inventories. 
Some agency officials believe the inventories will help with existing 
efforts related to workforce balance. Others are concerned they will 
not be given the necessary resources to implement any changes that 
would come from what they learned from the inventories such as 
converting contractor positions to government positions. 


The Consolidated Appropriations Act, 2010, requires the heads of 
civilian agencies subject to the FAIR Act of 1998 to annually submit 
to OMB an inventory of service contracts by December 31 of each year, 
beginning with fiscal year 2010 contracts.[Footnote 10] This 
requirement applies to approximately 50 executive agencies. To aid the 
agencies in establishing systems to collect the inventory information 
and to ensure consistency across agencies, the statute required the 
Director of OMB to develop and disseminate guidance by March 1, 2010. 
In addition, the statute required the Director of OMB to submit a 
report to Congress by July 31, 2010, on the status of its efforts to 
guide executive agencies as they prepare the inventories, including 
developing guidance, methodologies, and technical tools. Key tasks and 
dates required by the act are shown in figure 1. 

Figure 1: OMB and Civilian Agency Inventory Analysis Tasks and 
Reporting Requirements for Fiscal Years 2010 and 2011: 

[Refer to PDF for image: timeline] 

March 2010: 
OMB required to develop and disseminate guidance the development of 
their inventories (Guidance was issued in November 2010.) 

July 2010: 
OMB required to report to Congress on its efforts to enable agencies 
to prepare their inventories (As of May 26, 2011, OMB had not 

December 2010: 
Agencies submit their fiscal year 2010 inventories to OMB. 

January 2011: 
Agencies required to publish their fiscal year 2010 inventories. 

March 2011: 
OMB required to report to Congress on the fiscal year 2010 inventories. 

June 2011: 
Agencies must complete their selected analysis of their fiscal year 
2010 inventories. 

December 2011: 
Agencies must submit the report	on their analysis of their 2010	
Agencies submit	their fiscal year 2011 inventories to OMB. 

Source: GAO analysis of Consolidated Appropriations Act, 2010. 

[End of figure] 

As noted in the figure, OMB issued its guidance to agencies in 
November 2010, but did not issue a report to Congress by July 31, 
2010, as required. 

OMB'S Guidance on Service Contract Inventories Differs from the 
Requirements in the Consolidated Appropriations Act, 2010: 

OMB's November 2010 guidance addressed a number of the required 
inventory data elements as stated in the act; however, in some key 
areas, the guidance differed from the statutory inventory requirements 
in what agencies must include in their inventories. Because of these 
differences, in some cases agencies included more information than 
required, and in other cases they included less. For example, a key 
difference between the requirements in the act and the guidance is 
that for the fiscal year 2010 inventory, the act directed agencies to 
report information on contracts awarded or extended on or after April 
1, 2010, the second half of the fiscal year; however, OMB's guidance 
directed agencies to report contract actions covering the full fiscal 
year, so the agencies' inventories included more information than 
required. The nine agencies we reviewed reported approximately $30 
billion of service contract obligations for the first half of fiscal 
year 2010 in their inventories--52 percent of the total obligations 
reported in their fiscal year 2010 inventories---that would not have 
been included based on the directions in the law. 

Additionally, the act did not set a minimum dollar threshold for the 
contracts to report in the inventories, but OMB's guidance directed 
agencies to report on contract actions over $25,000. As a result, we 
found that approximately $1.6 billion in contract actions--or 2 
percent of the nine agencies' total service contract obligations for 
fiscal year 2010--were not included in the inventories because they 
were below the $25,000 threshold. OMB officials said they determined 
it was reasonable to collect data at that level and above, and 
contract actions below the $25,000 threshold would be relatively low 
risk to leave out in evaluating an agency's multisector workforce. 

OMB's guidance also directed agencies to report on personal services 
contracts differently from the law. The law required that each entry 
in an inventory specifically identify whether the contract was a 
personal services contract, but under OMB's guidance, only personal 
services contracts that have the personal services code in FPDS-NG 
would be included. According to OMB, however, the guidance allows 
agencies to assume such transactions have been properly coded as 
personal services contracts in FPDS-NG and therefore did not require 
agencies to review every nonpersonal services contract to identify if 
any have been miscoded and are potential unauthorized personal 
services contracts. OMB officials stated that it was not feasible to 
require agencies to review each nonpersonal services entry, which 
could be tens of thousands of actions for some agencies, by the 
required inventory reporting deadline. As a result, if a contract was 
miscoded in the system or was unauthorized and therefore not coded as 
a personal service, it would not be identified in the inventory. 
However, agencies might identify miscoded or unauthorized personal 
services contracts during their review of their inventories. For 
example, we reported in January 2011 that through its review of work 
performed by contractors, the Army identified 1,877 contractor 
employees performing unauthorized personal services.[Footnote 11] 

Another key difference between the act and the OMB guidance involves 
when data elements will be collected. The November 2010 inventory 
guidance directed agencies to compile the data elements that are 
currently available in FPDS-NG.[Footnote 12] As a result, three data 
elements required by the statute--the number and work locations of 
contractor and subcontractor employees compensated under the contract, 
the amount invoiced for services, and the role the services played in 
achieving agency objectives--were not included in the fiscal year 2010 
inventories because they are not available in FPDS-NG. OMB guidance 
noted it would require agencies to collect this information for fiscal 
year 2011 inventories and is taking steps to develop a standard 
governmentwide data-collection process for collecting the number of 
contractor employees and the amount invoiced for services. Figure 2 
identifies the elements OMB guidance required to be reported in fiscal 
year 2010 and the additional data elements required for fiscal year 

Figure 2: Services Contracts Inventory Data Elements Required by OMB's 

[Refer to PDF for image: list] 

Required data elements beginning in fiscal year 2010[A]: 
* Description of the services; 
* Organizational component(s) of the agency administering the contract; 
* Organizational component(s) of the agency using the contract; 
* Dollar amount obligated; 
* Funding source; 
* Contract type; 
* Contract award date; 
* Name of the contractor; 
* Place of performance; 
* Whether the contract was awarded on a noncompetitive basis; 
* Whether the contract is a personal services contract. 

Additional beginning in elements required 2011[B]: 
* The number and location of contractor and subcontractor employees; 
* How the services help achieve agency objectives; 
* Dollar amount invoiced. 

Source: GAO analysis of OMB data. 

Notes: Data are from OMB Civilian Contract Inventories guidance, 
November 2010. 

[A] These data elements are available in FPDS-NG. 

[B] These data elements are not available in FPDS-NG and require a 
separate collection method. 

[End of figure] 

OMB plans to issue additional guidance for preparing the fiscal year 
2011 contract inventories to include the remaining data elements and 
to take into account experiences with developing and using the fiscal 
year 2010 inventories. A proposed Federal Acquisition Regulation (FAR) 
rule published on April 20, 2011, revises the FAR to collect the 
information on contractor employees and amounts invoiced.[Footnote 13] 
The rule notes that alternatives were considered for collecting and 
maintaining this information electronically.Public comments on the 
proposed FAR rule are requested to be submitted by June 20, 2011. 
According to OMB officials, contractors will be expected to report 
this information annually for a given contract. 

Currently, civilian agencies do not have the ability to collect full- 
time equivalents (FTE) from contractors, or the amount invoiced. 
Several agency officials we contacted stated that limited time would 
be available to revise current contracts in time to collect this 
information for fiscal year 2011. They also expressed concerns about 
the anticipated associated costs of collecting this information. The 
proposed rule will require a new contract clause to be used in 
contracts that meet certain dollar thresholds where contractors will 
report the following information on service contracts by means of an 
electronic reporting portal, which is currently being developed: (1) 
contract number, and when applicable, task order number, (2) total 
dollar amount invoiced for services performed during the previous 
fiscal year under the contract, (3) the number of contractor direct 
labor hours expended on the services, and (4) number of direct-labor 
hours expended on services performed by first-tier subcontractors. OMB 
expects this information will be collected in a phased approach over 
the next 4 years based on contract type and total estimated value of a 

The President's budget request for fiscal year 2011 included a request 
for $6 million to create and maintain a contractor inventory database 
that OMB officials said could be used to collect this information. 
According to OMB officials, the requested amount was based on the 
estimated cost of building a stand-alone system for this reporting 
requirement, as the Army has done, but this funding was not 
appropriated. They stated they have since begun working with the 
managers of governmentwide acquisition support systems that are 
included in a modernization initiative referred to as the System for 
Award Management, which is part of the Integrated Acquisition 
Environment.[Footnote 14] OMB noted that this alternative approach 
should help civilian agencies to accommodate the statutory requirement 
without further delay and take into consideration available funding 
levels. The final data element to be included in the fiscal year 2011 
inventories--the role the services played in achieving objectives--
will require additional contract file documentation, and OMB officials 
told us they are evaluating the best way to collect that information. 

Agencies Experienced Few Challenges Compiling Inventories, but Some 
Anticipated Challenges Reviewing Them: 

Most Agencies Considered OMB Guidance Sufficient for Compiling Service 
Contract Inventories: 

We found all nine agencies submitted their fiscal year 2010 
inventories. Most agencies found the guidance to be clear. Table 1 
provides information on fiscal year 2010 service contracts actions and 
obligations.[Footnote 15] Agencies are to use this information as a 
starting point for their analysis. 

Table 1: Selected Agencies' Fiscal Year 2010 Service Contract Actions 
and Obligations: 

Agency: Department of Veterans Affairs (VA); 
Number of contract actions in service contract inventory: 27,810; 
Obligation amount for service contracts: $8.59 billion. 

Agency: Department of Health and Human Services (HHS); 
Number of contract actions in service contract inventory: 17,470; 
Obligation amount for service contracts: $13.25 billion. 

Agency: Department of Homeland Security (DHS); 
Number of contract actions in service contract inventory: 13,000; 
Obligation amount for service contracts: $11.90 billion. 

Agency: General Services Administration (GSA); 
Number of contract actions in service contract inventory: 5,490; 
Obligation amount for service contracts: $2.37 billion. 

Agency: Department of Energy (DOE); 
Number of contract actions in service contract inventory: 4,305; 
Obligation amount for service contracts: $26.00 billion. 

Agency: National Aeronautics and Space Administration (NASA); 
Number of contract actions in service contract inventory: 2,552; 
Obligation amount for service contracts: $1.38 billion. 

Agency: Department of Housing and Urban Development (HUD); 
Number of contract actions in service contract inventory: 1,163; 
Obligation amount for service contracts: $1.65 billion. 

Agency: Small Business Administration (SBA); 
Number of contract actions in service contract inventory: 323; 
Obligation amount for service contracts: $122 million. 

Agency: Federal Election Commission (FEC); 
Number of contract actions in service contract inventory: 45; 
Obligation amount for service contracts: $10 million. 

Source: GAO analysis of agency data. 

Note: Data are from service contract inventories. 

[End of table] 

One agency's inventory varied from the guidance; NASA only included 
new obligations incurred in fiscal year 2010 that were associated with 
ongoing contracts, new task orders associated with ongoing and new 
contracts, and the exercise of options that extended the performance 
period of a contract. NASA excluded obligations that existed in fiscal 
year 2010 that were based on an award prior to 2010. NASA found the 
part of the guidance that addressed this aspect of compiling its 
inventory unclear, so it sought additional guidance from OMB and 
compiled the inventory based on OMB's response. NASA interpreted OMB's 
response to mean that the approach it used was consistent with OMB's 
guidance. As a result, NASA's contracting actions and obligation 
amounts are lower than if they had compiled their inventories 
similarly to other agencies. 

OMB's Guidance Provided Direction for Agencies on Reviewing and 
Analyzing the Inventories: 

OMB's guidance provided agencies direction on completing the required 
inventory review and analysis. OMB recommended that agencies analyze 
the inventories by sampling contract files, interviewing program 
managers and contracting officer technical representatives, and using 
any other information-gathering method the agency deems is necessary. 
Figure 3 shows the requirements included in OMB's guidance that 
agencies are to address when reviewing their inventories. Agencies are 
to review information in the inventories to ensure contractors are not 
performing inherently governmental functions and to provide special 
management attention to contractors performing activities closely 
related to inherently governmental functions due to the nature of 
these contracts. 

Figure 3: Analysis Requirements in OMB Guidance: 

[Refer to PDF for image: list] 

Analysis requirements: 

Each agency head or an official designated by the agency head is to 
review the information in the inventory and ensure the following: 

* Inherently governmental functions are not being performed by
contractor employees; 
* Functions closely associated with inherently governmental functions
are given special management attention; 
* Personal services contracts have been entered into and are being
performed in accordance with applicable laws and regulations; 
* Internal agency resources are sufficient to effectively manage
and oversee contracts; 
* Poorly performed contracts due to excessive cost or poor quality
are identified. 

Source: GAO analysis of OMB data. 

[End of figure] 

Besides reviewing contracts to address concerns about using 
contractors for inherently governmental functions or functions closely 
related to inherently governmental functions, OMB guidance also 
directed agencies to give priority consideration to certain "special 
interest functions" that require increased management attention due to 
heightened risk of workforce imbalance. The imbalance was expected to 
fall into two areas of services: professional and management services 
and information-technology support services. OMB provided an 
illustrative list of these functions for heightened management 
consideration based on concerns of increased risk of losing control of 
mission and operations and the risk of overreliance on contractors. 

Agencies Anticipated Challenges Reviewing the Inventories but Are 
Moving Forward with Their Analyses: 

Agency officials cited some concerns with the requirement to analyze 
their inventories to determine if contractors are being used 
appropriately and effectively and if the mix of federal employees and 
contracts is balanced. In early 2011, several officials at the 
agencies we spoke with expressed concerns about completing a thorough 
inventory analysis by June 30, 2011, with the time and resources 
available. However, when we followed up with these agencies we found 
that as of April 2011, seven of nine agencies had started their 
analyses. For example, GSA officials told us its Office of General 
Services Acquisition Policy, Integrity, and Workforce is coordinating 
GSA's review and that four groups within GSA are analyzing their 
inventory: Public Building Service, Federal Acquisition Service, 
Office of the Chief Information Officer, and the Human Capital Office. 
GSA plans to meet the June 2011 deadline and will share the results of 
its analysis with senior management in an internal report. DHS 
officials stated they are early in the review process, but a number of 
groups within the agency are part of the review. The results of their 
review so far have been mixed; there are some contracts they believe 
will need to be converted into government positions, but they have 
determined others are appropriate to be outsourced. DHS officials 
stated that they are trying to ensure their process for conducting 
inventory analysis will be repeatable to facilitate inventory analyses 
in subsequent years. 

DOE officials told us they have begun their analysis of the 4,305 
contracting actions worth about $26 billion in obligations that they 
reported in their inventories. Thus far, their analysis shows that 
about 3,100 actions worth approximately $5 billion would be part of 
their review. DOE officials has decided they will exclude a special 
type of contract called management and operating contracts, which DOE 
has used for over 60 years, from further analysis. The majority of 
these contracts, valued at about $21 billion, are for the management 
and operation of DOE national laboratories. According to DOE, a 
management and operating contract is characterized by its special 
purpose and the unique relationship it creates between DOE and the 
contractor. DOE states the unique characteristics of these contracts 
are critical to mission success. DOE believes that these contracts 
would not be good candidates for insourcing because doing so would 
negatively affect the ability of DOE to perform its mission.[Footnote 
16] However, according to the OMB guidance, one purpose of compiling 
the inventory is to better understand how contracted services are 
being used to support mission and operations and whether the 
contractors' skills are being utilized in an appropriate manner. 

Other agencies are not as far along in reviewing their inventories. 
For instance, HUD officials told us in April 2011 that due to staff 
shortages they have not been able to start an analysis yet, but they 
plan to review the inventory in May when they go through their program 
management review process. Similarly, VA officials told us that they 
were beginning the analysis. VA has selected contracts to be reviewed 
through statistical sampling and has selected a contractor to review 
them starting in May 2011. VA officials believe they will meet the 
deadline for conducting the required analysis. 

Overall, agency officials expressed mixed feelings about the 
usefulness of the inventories for making acquisition and workforce 
decisions. HHS officials consider the inventories a management tool to 
help them determine what services the departments are really buying 
and why they are buying them. Further, they said the inventory would 
be another tool they can use to obtain clear contract data to help 
inform acquisition decisions. Similarly, DHS officials believe the 
inventory effort is closely related to existing workforce balancing 
efforts and view the inventory data as the sort of information they 
need to help achieve their goals. HUD officials said the inventory 
exercise could have value in helping them look at broad activities and 
how they are performed. Conversely, officials at DOE stated that 
because the nature of their work requires heavy reliance on 
contractors, and the way money is appropriated to the department, 
insourcing would be difficult at their agency. DOE officials are 
concerned about the availability of budgetary resources to implement 
any workforce decisions they would want to implement based on the 
analysis. DOE officials stated the agency would need additional budget 
support to change its current infrastructure for accomplishing its 
mission if federal employees would be performing more of the work. VA 
officials also expressed doubts about the usefulness of the inventory 
citing their concern that VA will not be able to implement any 
decisions due to uncertainty over additional authorized staff levels 
and budget resources. 

Concluding Observations: 

Good information on the roles and functions performed by contractors 
is important if federal agencies are to move forward in evaluating the 
balance of their multisector workforces. OMB's service inventory 
guidance has enabled agencies to take the initial steps to collect 
this information and begin analyzing their inventories, but challenges 
lie ahead in how agencies will collect the additional required 
inventory data that are not currently available governmentwide. 
Because the revision to the FAR will not likely be implemented until 
late in the current fiscal year and the process and system for 
collecting this information are not available, agencies will not 
likely be able to modify existing contracts in time to collect the 
additional inventory data for the fiscal year 2011 inventories. 
Moreover, it is still unclear at this time how agencies we reviewed 
will analyze and use this information as a tool for making workforce 
decisions once it is collected. Given civilian agencies' early stages 
of implementation, the additional planned guidance from OMB will be 
important to agencies in helping them address these challenges and in 
determining how their contractor inventory analyses will address 
multisector workforce decisions. 

Agency Comments: 

We provided a draft of this report for comment to the heads of OMB and 
the nine civilian agencies we reviewed: DOE, DHS, FEC, GSA, HHS, HUD, 
NASA, SBA, and VA. OMB and DOE provided technical comments, which we 
incorporated where appropriate. The remaining agencies responded that 
they had no comments. 

We are sending copies of this report to the Director of OMB; the 
Secretaries of Energy, Health and Human Services, Homeland Security, 
Housing and Urban Development, and Veterans Affairs; the 
Administrators of the General Services Administration, National 
Aeronautics and Space Administration, and the Small Business 
Administration; the Federal Election Commission; and interested 
congressional committees. In addition, the report will be available at 
no charge on GAO's Web site at [hyperlink,]. 

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-4841. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. Key contributors to this report include Jim 
Fuquay, Assistant Director; Morgan Delaney Ramaker; Lauren Heft; Julia 
Kennon; Victoria Klepacz; John Krump; and Roxanna Sun. 

Signed by: 

John P. Hutton:
Acquisition and Sourcing Management: 

List of Committees: 

The Honorable Dick Durbin:
The Honorable Jerry Moran:
Subcommittee on Financial Services and General Government:
Committee on Appropriations:
United States Senate: 

The Honorable Joseph I. Lieberman:
The Honorable Susan M. Collins:
Ranking Member:
Committee on Homeland Security and Governmental Affairs:
United States Senate: 

The Honorable Jo Ann Emerson:
The Honorable José E. Serrano:
Subcommittee on Financial Services and General Government:
Committee on Appropriations:
House of Representatives: 

The Honorable Darrell E. Issa:
The Honorable Elijah Cummings:
Ranking Member:
Committee on Oversight and Government Reform:
House of Representatives: 

[End of section] 


[1] The White House memorandum, Government Contracting (Mar. 4, 2009). 

[2] Inherently governmental functions, as a matter of policy, are so 
intimately related to the public interest as to require performance by 
government employees, and include functions that require discretion in 
applying government authority or value judgments in making decisions 
for the government. Federal Acquisition Regulation (FAR) 7.503(c) 
provides examples of such functions. Closely associated with 
inherently governmental functions are those that, while not inherently 
governmental, may approach the category because of the nature of the 
function, the manner in which the contractor performs the contract, or 
the manner in which the government administers performance under a 
contract. FAR 7.503(d) provides examples of such functions. 

[3] Consolidated Appropriations Act, 2010, Pub. L. No. 111-117, § 743 

[4] Office of Federal Procurement Policy Memorandum, Service Contract 
Inventories (Nov. 5, 2010). 

[5] FPDS-NG is the primary governmentwide contracting database, 
providing information on government contracting actions, procurement 
trends, and achievement of socioeconomic goals, such as small-business 

[6] Special interest functions as described by OMB are functions that 
require increased management attention due to heightened risk of 
workforce imbalance, such as relying heavily on contractors for 
information technology support. 

[7] The Federal Activities Inventory Reform Act of 1998, as amended 
(31 U.S.C. § 501 note), requires agencies to submit annual lists of 
activities that are not inherently governmental functions. Executive 
agencies subject to the FAIR Act include executive departments, such 
as DHS, and independent establishments, such as NASA. Pub. L. No. 105-
270 (1998), 31 U.S.C. § 501 note. 

[8] For past reports on FPDS-NG see GAO, Contracting Strategies: Data 
and Oversight Problems Hamper Opportunities to Leverage Value of 
Interagency and Enterprisewide Contract, [hyperlink,] (Washington, D.C.: Apr. 29, 
2010), and Federal Contracting: Observations on the Government's 
Contracting Data Systems, [hyperlink,] (Washington, D.C.: Sept. 29, 

[9] A personal services contract is characterized by the employer- 
employee relationship it creates between the government and the 
contractor's personnel. The government is normally required to obtain 
its employees by direct hire under competitive appointment or other 
procedures required by the civil service laws. Agencies are not 
permitted to award personal services contracts unless specifically 
authorized by statute to do so. (FAR 37.104). 

[10] Pub. L. No. 111-117, § 743 (a) (3) (2009). 

[11] GAO. Defense Acquisitions: Further Action Needed to Better 
Implement Requirements for Conducting Inventory of Service Contract 
Activities. [hyperlink,] 
(Washington, D.C.: Jan. 14, 2011). 

[12] As we previously reported FPDS-NG lacks the functionality to 
capture all necessary information for the inventories. For example, it 
is not possible to identify services that are purchased under a 
contract action coded as goods. See [hyperlink,]. 

[13] 76 Fed. Reg. 22070 (Apr. 20, 2011). The Act provides that 
agencies shall include the number and work location of contractor and 
subcontractor employees, as expressed as FTEs for direct labor, 
compensated under the contract in their inventories. Pub. L. No. 111- 
117, § 743 (a) (3) (G) (2009). 

[14] GSA has program management responsibility for the Integrated 
Acquisition Environment (IAE), which is an initiative to unify and 
streamline the federal acquisition process for government buyers and 
sellers, through the integration of information systems that collect 
and process procurement-related data. Information systems that fall 
under the IAE initiative include the Central Contractor Registration 
system, the Online Representations and Certifications Application, the 
Electronic Subcontracting Reporting System, and the Federal 
Procurement Data System-Next Generation (FPDS-NG) as well as the 
System for Award Management. 

[15] Contract action means any oral or written action that results in, 
among other things, the purchase or lease of supplies or services 
using appropriated dollars above the simplified acquisition threshold 
or modifications to contracts without regard to a dollar threshold. 
FAR 4.601. 

[16] According to the DOE officials, the management and operations 
contracts involve about 100,000 contractor employees located at 
numerous DOE facilities and laboratories across the United States. DOE 
officials believe that obtaining the authority to convert these 
contractor positions to federal civilian employee positions as well as 
finding employees with the requisite technical skills would be 
difficult to do as well as disruptive to the agency's operations. 

[End of section] 

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