Pension Benefit Guaranty Corporation
More Strategic Approach to Contracting Still Needed
GAO-11-588, Jun 29, 2011
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The Pension Benefit Guaranty Corporation (PBGC) insures the pension benefits of more than 44 million U.S. workers and retirees in more than 27,500 private defined benefit plans. In response to growing workloads over the last 20 years, PBGC has come to rely heavily on contractors to perform its work. With the influx of plan terminations during the recent economic downturn, GAO was asked to examine: (1) how PBGC decides between contracting for services and performing services in house; (2) the steps PBGC has taken to strengthen its internal controls over the contracting process; and (3) PBGC's implementation of a performance-based approach in its recent contracts. To conduct this study, GAO reviewed federal and PBGC contracting policies; interviewed PBGC officials and selected contractors; examined a small judgmental sample of eight recent contracts selected based on type, amount, and location; and assessed PBGC's actions in response to past GAO and PBGC Inspector General (IG) recommendations.
PBGC's contracting decisions are based primarily on historical practice within each of its departments rather than strategic assessment. Nearly three-fourths of PBGC's budget is allocated to contractors, yet PBGC does not have a strategic agency-level plan for contracting. PBGC often justifies extensive use of contractors based on the need to manage fluctuating workloads; however, historical data appear to indicate that PBGC has more contractor workers than needed to respond to workload fluctuations. Some of its contractor use is justified based on needed expertise or lower cost. However, because PBGC does not routinely conduct cost-benefit or risk analyses as part of its contract decision-making process, the efficiency and effectiveness of its contracting is unknown, and PBGC's long-term extensive reliance on contractors may be placing the agency at risk of eroding management control in core functions. At the same time, PBGC has adopted new policies and procedures to improve contractor oversight and ensure that federal contracting requirements are met, addressing past GAO and PBGC IG recommendations in this area. For example, PBGC has issued new standard operating procedures and is conducting training for staff involved in the agency's contracting activities. In addition, PBGC has increased the use of competitive and fixed price contracts, which provide more integrity to the contracting process by limiting government cost and performance risk. In addition, PBGC has implemented new guidance and training to improve staff knowledge and understanding of performance-based contracting and has expanded its use. Between fiscal years 2008 and 2010, PBGC increased the use of performance-based contracts from 2 to 12 percent. PBGC also increased its incorporation of performance metrics across various types of contracts to ensure performance is measured in terms of outcomes. Thus, past GAO and IG recommendations in this area have been partially addressed. However, unlike work performed in house, PBGC does not require performance metrics for its contract work to be linked to agency mission and goals, which is important to ensuring such work is well integrated into its strategic plan. GAO recommends that PBGC improve its strategic approach to contracting by developing an inventory of contract resources, assessing risk in areas heavily reliant on contractors, documenting its consideration of performance-based contracting, and linking contractor performance to agency goals. PBGC agrees with our recommendations.
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Recommendations for Executive Action
Recommendation: To improve PBGC's performance in an environment of heavy contractor use, further efforts are needed to better integrate contract decision making and contract management into PBGC's agency-level strategic planning process. While recognizing that Office of Management and Budget (OMB) guidance is not binding for PBGC, to assist PBGC in reassessing its extensive reliance on contracting, the Director of PBGC should implement OMB guidance that calls on agencies to develop a service contract inventory, by function and location across the agency and within its departments, to identify the extent of its current reliance on contractors and enable a balanced workforce analysis. At a minimum, such reviews should capture the total dollar amount of service contract spending by function and the role services play in achieving agency objectives. Consistent with OMB guidance, PBGC should give priority consideration to functions that require increased management attention due to heightened risk of workforce imbalance.
Agency Affected: Pension Benefit Guaranty Corporation
Status: Open
Comments: According to agency officials, PBGC is initiating development of a service contract inventory to assist in categorizing contracts and improving workforce planning and contracting decisions. Agency officials are in the process of defining criteria for the effort and expect to complete the first phase by March 1, 2012. GAO continues to believe that developing a service contract inventory would help PBGC to better integrate contract decision making and contract management into agency-level strategic planning process. GAO further believe that such reviews should capture the total dollar amount of service contract spending by function and the role services play in achieving agency objectives, with priority consideration given to functions that require increased management attention due to heightened risk of workforce imbalance.
Recommendation: To improve PBGC's performance in an environment of heavy contractor use, further efforts are needed to better integrate contract decision making and contract management into PBGC's agency-level strategic planning process. While recognizing that Office of Management and Budget (OMB) guidance is not binding for PBGC, to assist PBGC in reassessing its extensive reliance on contracting, the Director of PBGC should implement OMB guidance that calls on agencies to undertake a risk analysis in areas identified as heavily reliant on contractors, including an evaluation of the costs and benefits of decisions to award work to contractors in such areas.
Agency Affected: Pension Benefit Guaranty Corporation
Status: Open
Comments: In response to this recommendation, PBGC officials stated that the agency already considers the risks and costs associated with the strategic decision to use contractors as a means to respond to workload fluctuations and to obtain support services. In June 2011, PBGC initiated a review of its benefits administration and payments process that included an organizational assessment, workforce analysis, and business process evaluation. PBGC officials claim that the assessment represents a top-to-bottom review of its largest functional area and will inform the agency about contractor use across all departments. GAO does not agree with PBGC's assessment that a review of a specific business process is a proxy for a risk analysis of increase use of contracting in its individual departments. In addition, GAO does not agree that this initiative constitutes a risk analysis in areas identified as heavily reliant on contractors, including an evaluation of the costs and benefits of decisions to award work to contractors in such areas. Moreover, GAO's review of PBGC contracting activities found that specific departments with PBGC, including the Benefits Administration and Payments Department, had not conducted analysis of the risks involved with heavy contracting and an evaluation of the costs and benefits of awarding work to contractors for the past several years and that they do not routinely conduct an evaluation of the costs and benefits of performing work through contractors when making contracting decisions. Further, officials from all four of PBGC's programming departments we reviewed cited the agency's historical practice of using contractors to accomplish certain types of work among their prime reasons for using contractors. As a result, officials do not know the costs associated with awarding work to contractors as opposed to performing the work in-house. Moreover, over time, heavy reliance on contracting may be placing PBGC at risk of diminishing management control over contract activities and decreasing the level of expertise among its federal employees.
Recommendation: To encourage expanded use of performance-based contracting with performance metrics linked to the agency's mission and goals, the Director of PBGC should ensure that the rationale for not using a performance-based service acquisition approach is documented, consistent with the Federal Acquisition Regulation (FAR).
Agency Affected: Pension Benefit Guaranty Corporation
Status: Open
Comments: PBGC stated that it has addressed this recommendation by incorporating a requirement for documenting the basis for not using a performance-based service acquisition approach on its standard Advanced Procurement Plan (APP) form.
Recommendation: To encourage expanded use of performance-based contracting with performance metrics linked to the agency's mission and goals, the Director of PBGC should ensure that the performance metrics for major service contracts are linked to specific corporate strategic goals to the maximum extent practicable.
Agency Affected: Pension Benefit Guaranty Corporation
Status: Open
Comments: PBGC stated that it already ties performance metrics of major service contracts to its strategic goals through use of performance work statements, quality assurance surveillance plans, and performance metrics in performance-based contracts, and will continue to take action to better document this relationship by amending its standard Advanced Procurement Plan (APP) form to require departments requesting service contracts to provide explicit linkage between the agency's strategic plan and the department's contracting effort.