DOD Competitive Sourcing:

Savings Are Occurring, but Actions Are Needed to Improve Accuracy of Savings Estimates

NSIAD-00-107: Published: Aug 8, 2000. Publicly Released: Aug 8, 2000.

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Barry W. Holman
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Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) competitive sourcing activities, focusing on: (1) the extent to which actual savings have been achieved or can be expected as a result of competitions; and (2) DOD's efforts to improve processes for identifying and tracking changes to cost and savings estimates.

GAO noted that: (1) available data indicated that DOD realized savings from 7 of the 9 Office of Management and Budget's Circular A-76 cases GAO reviewed, although less than the $290 million savings DOD components initially projected; (2) neither GAO nor DOD could precisely quantify the extent of savings from these 9 cases; (3) savings estimates were imprecise for a number of reasons; (4) baseline cost estimates from which savings were estimated were usually calculated using an average cost of salary and benefits for the number of authorized positions rather than using actual costs for the positions actually filled, which would have been more precise; (5) while most baseline cost estimates were based largely on personnel costs, up to 15 percent of the costs associated with the government's most efficient organizations' plans or the contractors' offers were not personnel costs; (6) because these types of costs were not included in the baseline, a comparison of the baseline to the government's most efficient organization or contractor costs may have resulted in understanding the cost savings; (7) on the other hand, savings estimates did not reflect the study and implementation costs, which offset savings in the short term; (8) data limitations made it impractical to identify precise amounts of savings; (9) DOD has begun efforts to revise its information management systems to better track the estimated and actual costs of activities studied, though not to revise previous savings estimates; (10) DOD is also emphasizing development of standardized baseline cost data for use in determining initial savings estimates; (11) however, many of the cost elements that are used in A-76 studies will continue to be estimated because DOD lacks a cost accounting system to provide actual costs; (12) reported savings from A-76 studies will continue to have some element of uncertainty and imprecision and will be difficult to track in the out years because workload requirements change, affecting program costs and baseline from which savings are calculated; and (13) given that DOD is reducing its operating budgets based on projected savings from A-76 studies, it is important that it have as much information as possible on savings being realized, including adjustments for up-front investment costs and other changes that may occur over time.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: The Office of The Secretary of Defense's Competitive Sourcing and Privatization Office is in the process of updating and converting its current Commercial Activities Management Information System into a web-based system. This system is scheduled to be fielded by approximately November 2002. This system is being updated to include data elements that will allow DOD to assess changes in A-76 savings for each individual competition, and track the implementation of the study results. Currently, the Marine Corps is using activity-based costing when conducting its A-76 competitions.

    Recommendation: To improve the precision of savings estimates resulting from A-76 studies, the Secretary of Defense should: (1) develop an appropriate mechanism for assessing changes in A-76 savings in a systematic manner and require components to use data obtained in tracking the implementation of A-76 study results to update initial savings and projected savings estimates during the annual budget process; and (2) study the potential to use a costing methodology as an interim measure to provide a better estimation of baseline and other costs used to estimate savings from A-76 studies.

    Agency Affected: Department of Defense


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