Government Operations:

OMB Service Contracts Inventory Guidance and Implementation

GAO-11-538R: Published: May 27, 2011. Publicly Released: May 27, 2011.

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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. 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. 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. 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. 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 requirement. 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.

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. 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.

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