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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

November 2014: 

Defense Contractors: 

Additional Actions Needed to Facilitate the Use of DOD's Inventory of 
Contracted Services: 

GAO-15-88: 

GAO Highlights: 

Highlights of GAO-15-88, a report to congressional committees. 

Why GAO Did This Study: 

DOD is the government's largest purchaser of contractor-provided 
services. In 2008, Congress required DOD to compile and review an 
annual inventory of its contracted services to include the number of 
contractors providing services to DOD and the functions these 
contractors performed, and in 2011, amended this statute to require 
DOD to plan to use that inventory to inform certain department-wide 
decision making processes. The National Defense Authorization Act for 
Fiscal Year 2014 mandated GAO to report on the required reviews and 
plans to use these inventories. 

For this report, GAO assessed the extent to which DOD components (1) 
reviewed contracts and activities in the fiscal year 2012 inventory of 
contracted services and (2) developed plans to use the inventory for 
decision-making. GAO reviewed relevant laws and guidance, reviewed 
component certification letters from 32 components, and interviewed 
DOD acquisition, manpower, programming, and budgeting officials. 

What GAO Found: 

The Department of Defense (DOD) continues to face challenges in 
assuring that it conducts and reports on the results of its required 
inventory reviews. As of September 2014, 32 of the 33 components that 
were required to conduct an inventory review certified that they had 
done so and generally addressed more of the required reporting 
elements than in fiscal year 2011. However, GAO found limitations with 
the inventory review results. For example, the Air Force did not 
submit a fiscal year 2012 inventory certification letter and the 
Army's review was incomplete at the time its Secretary signed the 
certification. Further, components may not have fully identified all 
instances in which contractors were providing services that are 
closely associated with inherently governmental functions, a key 
review objective to help ensure that the DOD is not overly reliant on 
contractors to support core missions. DOD's March 2014 guidance, which 
is applicable to the fiscal year 2013 inventory, does not fully 
address some of the shortcomings GAO identified, including how to 
identify contracts for review or approaches to ensure that components 
adequately assess contractor activities. As a result, components may 
not fully identify instances of contractors providing services that 
are closely associated with inherently governmental functions. 

A key factor hindering the components' inventory reviews is the lack 
of accurate and reliable data. DOD has not resolved issues with 
implementing its planned common data system based on the Army's 
existing system. Further, in September 2014, DOD initiated a new 
review, due by December 2014, to identify and develop options to 
collect these data. This review raises a question of whether DOD will 
continue to implement a common data system modeled after the Army's 
system or attempt to develop a new system. DOD continues to lack a 
plan with timeframes and milestones to measure its progress toward 
implementing a common data system. These factors jeopardize DOD's goal 
to have all components, by 2016, collect statutory-required contractor 
manpower data. Further delays in resolving these issues will undermine 
the inventory's usefulness. 

The military departments generally have not developed plans to use the 
inventory of contracted services to facilitate DOD's strategic 
workforce planning, workforce mix, and budget decision-making 
processes, as statutorily required. Numerous offices are responsible 
for the various decision-making processes at the military departments, 
and the Secretaries of the military departments have not assigned 
specific responsibility for coordinating among these offices to do so. 
The absence of officials who are accountable for integrating the use 
of the inventory leaves the department at continued risk of not 
complying with the applicable legislative requirements to use the 
inventory to support management decisions. Internal control standards 
state that management should assign responsibility to enable an 
organization to achieve management objectives and to comply with laws. 

What GAO Recommends: 

GAO recommends DOD revise inventory guidance to improve the review of 
contract functions, approve a plan of action with milestones and 
timeframes to establish a common data system to collect contractor 
manpower data, and designate a senior management official at the 
military departments to develop plans to use inventory data to inform 
management decisions. DOD concurred with GAO's recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-15-88]. For more 
information, contact Timothy J.DiNapoli at (202) 512-4841 or 
dinapolit@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Components Better Addressed Reporting Requirements in Fiscal Year 
2012, but Some Reviews Were Incomplete: 

The Military Departments Have Not Developed Statutorily Required Plans 
or Identified Specific Responsibilities to Facilitate the Use of the 
Inventory: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comparison of Components' Identification of Contractors 
Providing Services Closely Associated With Inherently Governmental 
Functions in their Fiscal Year 2011 and 2012 Certification Letters: 

Appendix III: Comments from the Department of Defense: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Estimated Number of Contractor Full Time Equivalents (FTEs) 
and Obligations as Reported in DOD's Inventory of Contracted Services, 
Fiscal Years 2008-2013: 

Table 2: DOD's Guidance for Completing the Review of the Fiscal Year 
2012 Inventory of Contracted Services: 

Table 3: Components' reporting of required data elements in 
certification letters for fiscal years 2011 and 2012: 

Table 4: Strategic Workforce Planning Guidance and Processes at the 
Three Military Departments: 

Table 5: Role of the Inventory of Contracted Services in Existing 
Workforce Mix and Insourcing Guidance and Processes at the Three 
Military Departments: 

Table 6: Role of the Inventory of Contracted Services in Existing 
Budgeting Guidance and Processes at the Three Military Departments: 

Table 7: Offices Responsible for Workforce Planning, Budgeting, and 
the Inventory of Contracted Services at the Military Departments: 

Figures: 

Figure 1: Requirements under Title 10 Section 2330a Subsection (f): 

Figure 2: Comparison of Total Obligations for Contracts Which Often 
Involve Closely Associated with Inherently Governmental Functions to 
Obligations Reported for These Functions In Fiscal Year 2012 Inventory 
Certification Letters: 

Abbreviations: 

AT&L: Office of the Under Secretary of Defense for Acquisition, 
Technology, and Logistics: 

CMRA: Contractor Manpower Reporting Application: 

DLA: Defense Logistics Agency: 

DOD: Department of Defense: 

DTRA: Defense Threat Reduction Agency: 

ECMRA: Enterprise-wide Contractor Manpower Reporting Application: 

FAR: Federal Acquisition Regulation: 

FPDS-NG: Federal Procurement Data System - Next Generation: 

FTE: Full-time equivalent: 

ODA&M: Office of the Director of Administration and Management: 

P&R: Office of the Under Secretary of Defense for Personnel and 
Readiness: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

November 19, 2014: 

Congressional Committees: 

The Department of Defense (DOD), the federal government's largest 
purchaser of contractor-provided services, reported that it obligated 
about $187 billion--more than half of its total contract obligations--
on contracted services in fiscal year 2012. DOD relies on contractors 
to perform functions as varied as professional and management support, 
information technology support, medical services, and weapon system 
and intelligence support. These contractor personnel constitute a key 
component of DOD's total workforce, which includes DOD active and 
reserve forces and DOD civilian employees, and they are vital to 
helping DOD meet its mission. While there are benefits to using 
contractors to perform services for the government, the government can 
risk becoming overly reliant on contractors to support core missions, 
including providing services that are closely associated with 
inherently governmental functions,[Footnote 1] or creating 
circumstances in which contractors inappropriately perform functions 
deemed inherently governmental.[Footnote 2] 

In recent years, Congress has enacted legislation to improve DOD's 
ability to manage its acquisition of contracted services; to make more 
strategic decisions about the appropriate workforce mix; and to better 
align resource needs through the budget process to achieve that mix. 
As part of these efforts, Section 2330a of title 10 of the U.S. Code 
requires DOD to annually compile, and the military departments and 
defense agencies to review, an inventory of services contracted for or 
on behalf of DOD during the preceding fiscal year. This inventory is 
intended, in part, to help provide better insight into the number of 
contractor full-time equivalents (FTEs) providing services to the 
department and the functions they are performing, and determine 
whether any of these functions warrant conversion to DOD civilian 
performance.[Footnote 3] Further, this section also requires DOD to 
undertake certain actions using these inventories. Specifically, 
subsections (e) and (f), respectively, direct the secretaries of the 
military departments or heads of the defense agencies to, among other 
things: 

* review the inventory to ensure that personal services contracts on 
the list are performed under applicable statute and regulation and 
identify contracted functions that DOD should consider for conversion; 
and: 

* develop a plan, including an enforcement mechanism and approval 
process, to use the inventory for strategic workforce planning, 
workforce mix, and budgeting decisions. 

Section 951(a) of the National Defense Authorization Act for Fiscal 
Year 2014 mandated GAO to report on DOD's implementation of title 10 
section 2330a subsections (e) and (f).[Footnote 4] We assessed DOD's 
efforts to (1) implement subsection (e) to review contracts and 
functions in the inventory of contracted services for the fiscal year 
2012 inventory and (2) implement subsection (f) to develop plans and 
processes to use the inventory for strategic workforce planning, 
workforce mix, and budget decisions. 

To assess the extent to which DOD components--which include the three 
military departments and the defense agencies--complied with the 
requirements to review applicable contracts and functions in its 
inventory of contracted services pursuant to subsection (e), we 
focused on DOD's fiscal year 2012 inventory and associated review, 
which was the latest inventory and review available when we initiated 
our work. We reviewed DOD's fiscal year 2012 inventory review 
guidance, issued on February 4, 2013, which required the military 
departments and defense agencies to certify--through submission of a 
certification letter to the Office of the Under Secretary of Defense 
for Personnel and Readiness (P&R)--that their review was conducted in 
accordance with subsection (e). The guidance required components to 
report on seven elements, including, among other elements, the 
contract selection criteria and methodologies used to conduct the 
reviews, the extent to which contractors were found to be performing 
inherently governmental functions and those closely associated with 
inherently governmental functions, and to the extent necessary, a plan 
to realign the work to government performance. We assessed all 
unclassified fiscal year 2012 inventory review certification letters 
submitted by 32 DOD components as of September 2014 to determine if 
components addressed the seven elements specified in DOD's February 
2013 inventory review guidance.[Footnote 5] In addition, we selected 
the Army, Navy, and Air Force, based on obligations for contracted 
services, and three defense agencies based on the number of contractor 
FTEs they identified as performing closely associated with inherently 
governmental functions--the Defense Logistics Agency (DLA), the 
Defense Threat Reduction Agency (DTRA) and the Office of the Director 
of Administration and Management (ODA&M)--for more in depth reviews. 
[Footnote 6] We interviewed officials responsible for compiling and 
reviewing the inventory and reviewed training documents and selected 
data from the inventory review process. In addition, we interviewed 
officials from P&R; the Office of the Under Secretary of Defense for 
Acquisition, Technology, and Logistics (AT&L); and the Office of the 
Under Secretary of Defense (Comptroller). 

To assess the extent to which DOD components have developed plans and 
processes to use the inventory to inform management decisions pursuant 
to subsection (f), we reviewed defense-wide and military department 
specific strategic workforce planning, manpower mix, and budgeting 
guidance and documentation. This guidance and documentation included 
DOD's Fiscal Year 2013-2018 Strategic Workforce Plan Report, DOD's 
instructions on manpower mix and insourcing criteria, DOD's Financial 
Management Regulations and supplemental guidance, and available 
guidance and instructions issued by the military departments. We also 
reviewed meeting minutes at the Navy, where an official stated the 
Navy had formed a working group to address the requirements of title 
10 U.S.C. § 2330a(f). We interviewed officials from P&R, AT&L, and the 
Comptroller's office, and acquisition, manpower, and budgeting 
officials at all three military departments. At the Army and Air Force 
we also interviewed programming officials. A detailed description of 
our scope and methodology is included in appendix I. 

We conducted this performance audit from May 2014 to November 2014 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 audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on audit objectives. 

Background: 

Inventory Compilation Requirements: 

In part to improve the information available and management of DOD's 
acquisition of services, in fiscal year 2002 Congress enacted section 
2330a of title 10 of the U.S. Code, which required the Secretary of 
Defense to establish a data collection system to provide management 
information on each purchase of services by a military department or 
defense agency.[Footnote 7] The information DOD is to collect 
includes, among other things, the services purchased, the total dollar 
amount of the purchase, the form of contracting action used to make 
the purchase, and the extent of competition provided in making the 
purchase. In 2008, Congress amended section 2330a to add a requirement 
for the Secretary of Defense to submit an annual inventory of the 
activities performed pursuant to contracts for services on behalf of 
DOD during the preceding fiscal year.[Footnote 8] 

The inventory is to include a number of specific data elements for 
each identified activity, including: 

* the function and missions performed by the contractor; 

* the contracting organization, the component of DOD administering the 
contract, and the organization whose requirements are being met 
through contractor performance of the function; 

* the funding source for the contract by appropriation and operating 
agency; 

* the fiscal year the activity first appeared on an inventory; 

* the number of contractor employees (expressed as full FTEs) for 
direct labor, using direct labor hours and associated cost data 
collected from contractors;[Footnote 9] 

* a determination of whether the contract pursuant to which the 
activity is performed is a personal services contract;[Footnote 10] 
and: 

* a summary of the information required by section 2330a(a) of title 
10 of the U.S. Code.[Footnote 11] 

Within DOD, AT&L, P&R, and the Comptroller have shared responsibility 
for issuing guidance for compiling and reviewing the inventory. P&R 
compiles the inventories prepared by the components, and AT&L formally 
submits a consolidated DOD inventory to Congress no later than June 30 
of each fiscal year, though some inventory submissions have been 
later. DOD has submitted annual, department-wide inventories for 
fiscal years 2008 through 2013, the most recent submitted on July 2, 
2014 (see table 1).[Footnote 12] 

Table 1: Estimated Number of Contractor Full Time Equivalents (FTEs) 
and Obligations as Reported in DOD's Inventory of Contracted Services, 
Fiscal Years 2008-2013: 

Fiscal year: 2008; 
Estimated number of contractor FTEs: 655,000; 
Total obligations (in billions): $127. 

Fiscal year: 2009; 
Estimated number of contractor FTEs: 767,000; 
Total obligations (in billions): $155. 

Fiscal year: 2010; 
Estimated number of contractor FTEs: 623,000; 
Total obligations (in billions): $121. 

Fiscal year: 2011; 
Estimated number of contractor FTEs: 710,000; 
Total obligations (in billions): $145. 

Fiscal year: 2012; 
Estimated number of contractor FTEs: 670,000; 
Total obligations (in billions): $129. 

Fiscal year: 2013; 
Estimated number of contractor FTEs: 629,000; 
Total obligations (in billions): $123. 

Source: DOD's inventory of contracted services. GAO-15-88. 

Notes: The Army's inventory data reflects total invoiced dollar 
amounts rather than obligations. 

[End of table] 

The changes in DOD's overall approach, in particular how DOD as a 
whole reflected research and development services and the use of 
different formulas for estimating contractor FTEs, among other 
factors, affected the reported changes in inventory data from year to 
year. Consequently, we and DOD officials agreed that caution should be 
exercised when making direct comparisons between fiscal years 2008 
through 2013 inventory data. All FTE figures are rounded to the 
nearest thousand. 

As we previously reported, the service contract obligations reported 
in the inventory of contracted services for a given fiscal year may 
not match the amount of contract obligations from the Federal 
Procurement Data System-Next Generation (FPDS-NG), in part because the 
FPDS-NG obligation amount for services captures categories of services 
that are not reported in the inventory, such as lease or rental of 
equipment and facilities, and military construction. See GAO-13-491. 

Since DOD implemented the department-wide inventory of contracted 
services, the primary source used by DOD components to compile their 
inventories, with the exception of the Army, has been Federal 
Procurement Data System-Next Generation (FPDS-NG). As we have 
previously reported, the FPDS-NG--the government's central repository 
for contracting data--has several limitations that impact its utility 
for purposes of compiling a complete and accurate inventory.[Footnote 
13] For example, FPDS-NG does not capture the number of contractor 
FTEs or direct labor hours used to perform each service, does not 
capture any services performed under contracts that are predominately 
for supplies, and does not identify more than one type of service 
purchased for each contract action. As the inventory is required to 
identify each activity performed pursuant to a contract for services, 
the use of FPDS-NG as the basis for the data in the DOD components' 
inventories does not satisfy the inventory statute, and limits the 
usefulness of inventory data in making management decisions. 

As we previously reported, to obtain better visibility of its service 
contractor workforce, the Army developed its Contractor Manpower 
Reporting Application (CMRA) in 2005 to collect information on labor-
hour expenditures by function, funding source, and mission supported 
on contracted efforts, and has used CMRA as the basis for its 
inventory.[Footnote 14] CMRA captures data directly reported by 
contractors on services performed at the contract line item level, 
including information on the direct labor dollars, direct labor hours, 
total invoiced dollars, the functions performed, and the 
organizational unit on whose behalf the services are being performed. 
In instances where contractors are providing different services under 
the same task order, or are providing services at multiple locations, 
contractors can enter additional records in CMRA to capture 
information associated with each type of service or location. It also 
allows for the identification of services provided under contracts for 
goods. 

Inventory Review and Use Requirements: 

Within 90 days after an inventory is submitted to Congress, section 
2330a(e) of title 10 of the U.S. Code requires the secretaries of the 
military departments or heads of the defense agencies to complete a 
review of the contracts and functions in the inventory for which they 
are responsible. P&R, as supported by the Comptroller, is responsible 
for, among other things, developing guidance for the conduct and 
completion of this review.[Footnote 15] As part of this review, the 
military departments and defense agencies are to ensure that: 

* any personal services contracts on the inventory were properly 
entered into and performed appropriately; 

* the activities on the list do not include any inherently 
governmental functions; and: 

* to the maximum extent practicable, the activities on the inventory 
do not include any closely associated with inherently governmental 
functions. 

Section 2330a(e) also requires under this review that the secretaries 
of the military departments and heads of defense agencies identify 
work that should be considered for conversion to government 
performance, or insourced, pursuant to section 2463 of title 10 of the 
U.S. Code, or to a more advantageous acquisition approach. Section 
2463 specifically requires the Secretary of Defense to make use of the 
inventory to identify critical functions, acquisition workforce 
functions, and closely associated with inherently governmental 
functions performed by contractors, and that the Under Secretary of 
Defense for P&R implement guidelines and procedures to give special 
consideration to converting those functions to DOD civilian 
performance. 

Further, section 808 of the National Defense Authorization Act for 
Fiscal Year 2012 requires the Secretary of Defense to issue guidance 
to the military departments and the defense agencies to, among other 
things, eliminate contractor positions identified as performing 
inherently governmental functions and reduce, by 10 percent, funding 
for contractor staff performing closely associated with inherently 
governmental functions in fiscal years 2012 and 2013.[Footnote 16] As 
implemented by DOD, the secretaries of the military departments and 
heads of the defense agencies are instructed to use the fiscal year 
2010 inventory, or the fiscal year 2011 inventory if the data are 
unknown in the 2010 inventory, as the baseline against which the 10 
percent funding reductions will be made. GAO has ongoing work to 
assess DOD's compliance with section 808. 

In addition, in December 2011 section 2330a of title 10 of the U.S. 
Code was amended to add a new subsection (f) requiring the secretaries 
of the military departments and heads of the defense agencies 
responsible for contracted services in the inventory to develop a 
plan, including an enforcement mechanism and approval process, to use 
the inventory to inform management decisions (see figure 1). 

Figure 1: Requirements under Title 10 Section 2330a Subsection (f): 

[Refer to PDF for image: illustration] 

Title 10 Section 2330a subsection (f), U.S. Code: 

Subsection (f) directs the Secretaries of the Military 
Departments/Heads of Defense Agencies to develop plans, including 
enforcement and approval mechanisms, to: 

(1) provide for the use of the inventory by the military department or 
defense agency to implement the requirements of section 129a of title 
10; 
The four parts of subsection (f) refer to specific sections of title 
10 which are directed to the Secretary of Defense or to an Under 
Secretary of Defense: 
Section 129a directs the Secretary of Defense to establish policies 
and procedures for determining the appropriate mix of military, 
civilian, and contractor personnel to perform DOD's mission, with 
attainment of the appropriate workforce size and mix taking precedence 
over cost. DOD is to use the civilian strategic workforce plan and the 
inventory of contracted services in determining the appropriate 
workforce mix. 

(2) ensure the inventory is used to inform strategic workforce 
planning; [Section 115b of title 10 is DOD's strategic workforce 
planning requirement]; 
The four parts of subsection (f) refer to specific sections of title 
10 which are directed to the Secretary of Defense or to an Under 
Secretary of Defense: 
Section 115b directs the Secretary of Defense to submit to Congress a 
biennial strategic workforce plan to include an assessment of the 
appropriate mix of military, civilian, and contractor personnel 
capabilities as determined under the total force management policies 
and procedures. 

(3) facilitate use of the inventory for compliance with section 235 of 
title 10; 
The four parts of subsection (f) refer to specific sections of title 
10 which are directed to the Secretary of Defense or to an Under 
Secretary of Defense: 
Section 235 directs the Secretary of Defense to include for each 
budget account in the budget justification materials submitted to 
Congress a clear and separate identification of: (1) the amount 
requested for procurement of contract services for each DOD component, 
installation, or activity; and (2) the number of full-time contractor 
employees projected and justified for each DOD component, 
installation, or activity based on the inventory of contracted 
services. 

(4) provide for appropriate consideration of the conversion of 
activities identified under subsection (e)(3) within a reasonable 
period of time. [Subsection (e)(3) refers to Section 2463 of title 10]; 
The four parts of subsection (f) refer to specific sections of title 
10 which are directed to the Secretary of Defense or to an Under 
Secretary of Defense: 
Section 2463 directs the Under Secretary of Defense for Personnel and 
Readiness to establish procedures to ensure consideration of civilian 
employees to perform new functions and functions performed by 
contractors, and to give special consideration to using civilian 
employees to perform critical functions and functions closely 
associated with inherently governmental functions, among others. The 
inventory of contracted services is to be used to identify functions 
that should be considered for performance by civilian employees. 

Source: GAO analysis of Title 10 section statutory requirements. 
GAO-15-88. 

[End of figure] 

Collectively, these statutory requirements mandate the use of the 
inventory and the associated review process to enhance the ability of 
DOD to identify and track services provided by contractors, achieve 
accountability for the contractor sector of DOD's total workforce, 
help identify contracted services for possible conversion from 
contractor performance to DOD civilian performance, support DOD's 
determination of the appropriate workforce mix, and project and 
justify the number of contractor FTEs included in DOD's annual budget 
justification materials. 

Prior GAO Work: 

We have issued several reports on DOD's efforts to compile and review 
its inventory of contracted services, including initiatives to 
standardize contractor manpower data collection across the department. 
For example, in January 2011 we recommended that DOD develop a plan of 
action to facilitate the department's stated intent to collect 
contractor manpower data and address other limitations in its approach 
to meeting inventory requirements, such as using FPDS-NG to compile 
the required inventories.[Footnote 17] 

In April 2012, we reported that DOD issued a plan in November 2011 to 
develop a common technology solution, leveraging existing data 
collection approaches, such as the Army's CMRA system, that would 
allow the department to collectively meet the inventory 
requirements.[Footnote 18] DOD's November 2011 plan provided for short-
term and long-term actions intended to meet the requirements of 10 
U.S.C. § 2330a. DOD stated that it was committed to assisting 
components as they implement their plans, especially those currently 
without reporting processes or infrastructure in place, by leveraging 
the Army's CMRA system, processes, best practices, and tools to the 
maximum extent possible. Part of the long-term plan was to develop a 
comprehensive instruction for components to use on the development, 
review, and use of the inventories and for the Office of the Deputy 
Chief Management Officer, P&R, and other stakeholders to form a 
working group to develop and implement a common data system to collect 
and house the information required for the inventory, including 
contractor manpower data. DOD noted in its plan that it expected the 
data system to be operational and DOD components to be reporting on 
most of their service contracts by fiscal year 2016. While we found 
the plan represented a step in the right direction, it did not contain 
timeframes or resources needed, as we had previously recommended. 
Further, we found that DOD faced challenges in developing a common 
data collection system given the different requirements of the 
military departments and the remaining defense agencies.[Footnote 19] 

In May 2013, we reported that a November 2012 memorandum stated that 
DOD would establish a common data collection system based on the 
Army's CMRA system--the Enterprise wide Contractor Manpower Reporting 
Application (ECMRA)--for DOD components to begin reporting data in 
time for the department's fiscal year 2013 inventory submission, but 
did not expect that components would fully use the system for most of 
their contracts for services until fiscal year 2016.[Footnote 20] We 
found that the department had taken steps to implement interim CMRA-
based data collection systems for the Air Force and Navy. At that 
time, DOD noted that it expected to field an interim CMRA-based data 
collection system that would be shared by the remaining defense 
agencies, which DOD subsequently fielded in September 2013. In May 
2014, however, we found that while the department took interim steps, 
it had not fully implemented the common data collection system as 
called for in its November 2011 plan.[Footnote 21] 

Components Better Addressed Reporting Requirements in Fiscal Year 
2012, but Some Reviews Were Incomplete: 

We found that DOD components' 2012 inventory review certifications 
better addressed DOD's required reporting elements than in prior 
years, but the department continues to face challenges in assuring 
that all DOD components conduct and report on the required reviews. 
For example, as of September 2014, 32 of the 33 components certified 
that they had reviewed their inventory of contracted services and, 
overall, more components addressed more of DOD's required reporting 
elements than in fiscal year 2011. However, the Air Force, which 
accounts for about 20 percent of DOD's obligations for contracted 
services, did not submit a certification letter, as required. Further, 
the Army, which represents 30 percent of DOD's obligations for 
contracted services, submitted a certification though its review was 
incomplete at the time the Secretary of the Army signed the letter. 
This occurred, in part, because it did not include a review of 
functions in one command or review functions that were transferred 
between two commands. DOD also continues to face challenges in fully 
implementing the CMRA-based common data system that is intended to 
collect the required data for the inventories DOD components must 
review, thus jeopardizing its plan to have all components using this 
system to collect manpower data reported by contractors by 2016. DOD 
recently directed a study to identify and develop other enterprise 
solutions to address the inventory data collection requirements by 
December 2014. It is uncertain whether DOD will continue to implement 
its previous plan for a DOD-wide system based on the Army's CMRA 
system. 

Fiscal Year 2012 Review Results Demonstrate Improved Reporting, but 
Challenges Remain: 

DOD's February 2013 guidance for the fiscal year 2012 inventory, 
issued jointly by AT&L and P&R, included two changes that DOD 
officials believed would improve the completeness and granularity of 
the inventory review data reported in the certification letters from 
the prior year. The changes included an increase in the percentage of 
contract functions to review from the component's inventories from 50 
percent to 80 percent and one additional data element--the review 
results table. The guidance instructed components to include at a 
minimum seven elements in their certification letters (see table 2). 

Table 2: DOD's Guidance for Completing the Review of the Fiscal Year 
2012 Inventory of Contracted Services: 

Information to be included in component certification letters based on 
a minimum review of 80 percent of contract functions: 

* an explanation of the methodology used to conduct the reviews and 
criteria for selection of contracts to review; 

* the identification of any inherently governmental functions or 
unauthorized personal services contracts, with a plan of action to 
either divest or realign such functions to government performance; 

* the identification of contracts under which closely associated with 
inherently governmental functions are being performed and an 
explanation of steps taken to ensure appropriate government control 
and oversight of such functions, or if necessary, a plan to either 
divest or realign such functions to government performance; 

* the actions being taken or considered with regards to annual program 
reviews and budget processes to ensure appropriate reallocation of 
resources based on the reviews conducted; 

* delineation of the results in accordance with all applicable title 
10 provisions and the guidance; 

* the identification of contracted services that are exempt from 
private sector performance in accordance with DOD Instruction 1100.22, 
which establishes policies and procedures for determining the 
appropriate manpower mix; require special consideration under 10 
U.S.C. § 2463; or are being considered for cost reasons, to be 
realigned to government performance; 

* a review results table showing the number of full time equivalents 
and associated invoiced dollars with the following categories: 
inherently governmental functions; closely associated with inherently 
governmental functions; critical functions, unauthorized personal 
services lacking statutory authority; authorized personal services; 
and commercial functions. The guidance noted that this table should be 
accompanied by a narrative explaining the degree to which the 
functions are Overseas Contingency Operation funded or reimbursable 
functions not currently included in a component's budget estimate for 
contracted services. 

Source: GAO analysis of DOD's guidance. GAO-15-88. 

Note: Italicized text reflects changes from DOD's fiscal year 2011 
inventory review guidance. 

[End of table] 

Overall, we found DOD components generally addressed more of the 
required elements in their fiscal year 2012 certification letters than 
they had in fiscal year 2011 (see table 3). 

Table 3: Components' reporting of required data elements in 
certification letters for fiscal years 2011 and 2012: 

Total number of components required to submit a certification letter; 
Fiscal Year 2011[A]: 31; 
Percent of components reporting in fiscal year 2011: [Empty]; 
Fiscal Year 2012[B]: 33; 
Percent of components: reporting in: fiscal year 2012: [Empty]. 

Number of required elements; 
Fiscal Year 2011[A]: 6; 
Percent of components reporting in fiscal year 2011: [Empty]; 
Fiscal Year 2012[B]: 7; 
Percent of components: reporting in: fiscal year 2012: [Empty]. 

Number of components reporting required elements: 

At least 1 element; 
Fiscal Year 2011[A]: 29; 
Percent of components reporting in fiscal year 2011: 94%; 
Fiscal Year 2012[B]: 32; 
Percent of components: reporting in: fiscal year 2012: 97%. 

At least 2 elements; 
Fiscal Year 2011[A]: 27; 
Percent of components reporting in fiscal year 2011: 87%; 
Fiscal Year 2012[B]: 31; 
Percent of components: reporting in: fiscal year 2012: 94%. 

At least 3 elements; 
Fiscal Year 2011[A]: 24; 
Percent of components reporting in fiscal year 2011: 77%; 
Fiscal Year 2012[B]: 31; 
Percent of components: reporting in: fiscal year 2012: 94%. 

At least 4 elements; 
Fiscal Year 2011[A]: 15; 
Percent of components reporting in fiscal year 2011: 48%; 
Fiscal Year 2012[B]: 30; 
Percent of components: reporting in: fiscal year 2012: 91%. 

At least 5 elements; 
Fiscal Year 2011[A]: 5; 
Percent of components reporting in fiscal year 2011: 16%; 
Fiscal Year 2012[B]: 26; 
Percent of components: reporting in: fiscal year 2012: 79%. 

At least 6 elements; 
Fiscal Year 2011[A]: 0; 
Percent of components reporting in fiscal year 2011: 0; 
Fiscal Year 2012[B]: 16; 
Percent of components: reporting in: fiscal year 2012: 48%. 

At least 7 elements; 
Fiscal Year 2011[A]: N/A; 
Percent of components reporting in fiscal year 2011: N/A; 
Fiscal Year 2012[B]: 7; 
Percent of components: reporting in: fiscal year 2012: 21%. 

Source: GAO analysis of DOD component certification letters for fiscal 
years 2011 and 2012; GAO-13-491. GAO-15-88. 

[A] The Defense Microelectronics Activity and US Forces Korea did not 
submit a certification letter for fiscal year 2011; however, both 
provided letters in fiscal year 2012. 

[B] The Air Force did not submit a certification letter for fiscal 
year 2012. 

[End of table] 

Our analysis found that seven components, representing about 15 
percent of the total dollars included in the department's inventory of 
contracted services, addressed all seven elements required, and nearly 
80 percent of the components addressed at least five of the seven 
elements. We found that about one-third of the components did not 
address the required element to identify the appropriate manpower mix 
and about half did not address the required element to identify 
actions taken to ensure appropriate reallocation of resources based on 
the reviews. 

While this represents an improvement over the inventory review results 
reported in the fiscal year 2011 certification letters, we also found 
several significant limitations with the fiscal year 2012 inventory 
results reported in the certification letters. For example, 

* The Air Force, which represented about 20 percent of DOD's contract 
obligations for services in fiscal year 2012, did not submit a 
certification letter. Air Force officials stated that they focused on 
completing the fiscal year 2013 inventory review rather than 
submitting the required fiscal year 2012 certification letter. 

* The Army, which accounted for about 30 percent of DOD's contract 
obligations reported in DOD's fiscal year 2012 inventory for 
contracted services, certified in its April 2014 letter that it 
reviewed more than 80 percent of contracted functions from its 
inventory, which an Army official told us was based on contract 
invoice amount.[Footnote 22] However, the data supporting the 
certification letter revealed issues at three Army commands that 
comprise more than a quarter--or $23.4 billion--of the Army's reported 
invoiced dollars, indicating that the Army may have overstated the 
contract functions reviewed. For example, the certification letter did 
not include review data from the Army Acquisition Support Command 
because their review was not complete when the Army submitted its 
certification letter. This command represented $10.7 billion, or 14 
percent, of the Army's total invoiced dollars for contracted services 
reported in fiscal year 2012. Further, the Army Installation 
Management Command, which accounted for 30 percent of Army's reported 
contractor FTEs performing closely associated with inherently 
governmental functions in fiscal year 2011, transferred responsibility 
for some of these functions to the Army Materiel Command. However, 
officials at the Army Materiel Command reported that they did not 
include these transferred functions in the fiscal year 2012 review, 
stating that there were too many new contracts to review in one year. 
The officials added that for this and other reasons, the command's 
review data for fiscal year 2012 are not complete or accurate. 

* While 21 of the 32 components certified that they reviewed at least 
80 percent of contract functions, we found that components interpreted 
contract functions differently. DOD's February 2013 guidance for the 
fiscal year 2012 inventory required components to review at least 80 
percent of the functions associated with all contracts, task orders, 
delivery orders, or interagency acquisition agreements listed in the 
inventory. The guidance further states that priority shall be given to 
contracts previously not reviewed or those that may present a higher 
risk of inappropriate performance. However, the guidance does not 
specify how to determine the percent of contract functions nor 
identify what types of contracts may be at a higher risk of 
inappropriate performance. As such, some components specified that 
they reviewed a percentage of product service codes, contract 
obligations, individual contracts, or contractor FTEs identified in 
their inventories. In other cases the letters did not indicate what 
the component considered a contract function. 

* Certification letters also varied in terms of the information and 
insights provided on the methodologies used to review the selected 
contract functions in the inventories, and it was not clear from the 
letters whether all components considered contractor performance and 
contract administration when reviewing selected contracts. DOD's 
February 2013 guidance for the fiscal year 2012 inventory requires 
components to consider the nature of contract performance and 
administration, but it does not define what processes may be used to 
review functions to determine the types of activities performed. For 
example, one component's review compared inventory data to basic 
information in the component's contract writing system and relied on 
the component's acquisition planning process to determine how the 
contract was performed. At another component, the review included 
coordination with program managers, contracting officers, contracting 
officer representatives, and budget officials and consideration of a 
range of data and documents to identify and understand whether the 
work performed under the contract included inappropriate functions. 
One component we interviewed, the Army, provided additional details in 
its guidance on which officials should participate in the review and 
how to assess contract activities. The Army requires a checklist at 
various points in the contract cycle, including contract award and 
modification, to identify activities performed under the contract and 
help inform the inventory review process. The Army requires the 
reviewer to be a person in the requiring activity who is familiar with 
how the contract is administered and performed and thoroughly 
understands the work being performed. 

* Some officials we interviewed expressed confusion over the various 
functional categories in the review results table and noted that the 
distinction between inherently governmental, closely associated with 
inherently governmental, and personal services is not always clearly 
understood. Officials we interviewed at four of the six components 
provided supplemental inventory review guidance including definitions 
for some of the functions to help define inappropriate performance or 
contract activities that require additional management attention. 

Components May Have Understated Contractors Performing Certain 
Functions: 

The lack of specific guidance on how to identify or review contract 
functions may have led to components understating the degree to which 
contractors were providing services closely associated with inherently 
governmental functions. Fifteen of the 32 components identified 
contractors performing closely associated with inherently government 
functions in the fiscal year 2012 inventory and provided more specific 
information on contractor FTEs performing these functions than in 
fiscal year 2011. For example, eight components reported that they had 
contracts containing these functions in their fiscal year 2011 
certification letters without providing specific information on the 
number of contractor FTEs. In their fiscal year 2012 certification 
letters, however, these eight components identified the specific 
number of contractor FTEs and obligations associated with these 
functions. Another 15 components certified they did not have 
contractors performing closely associated with inherently governmental 
functions, while two components' certification letters did not address 
closely associated with inherently governmental functions. Appendix II 
provides details on components that identified contractors performing 
inherently governmental functions. 

In May 2013, we found it was difficult to determine how many 
contractors are performing closely associated with inherently 
governmental functions based on components' reported methodologies and 
inventory review results. Further, we found that DOD components may 
not have accurately identified the extent to which their contractors 
are performing closely associated with inherently governmental 
functions during their reviews.[Footnote 23] Based on our latest 
review of the fiscal year 2012 inventory review results, it is still 
not clear whether DOD components fully identified the extent to which 
their contractors are performing closely associated with inherently 
governmental functions. 

Our latest review, similar to our prior work, found that DOD contracts 
for significant amounts of professional and administrative and 
management support services. A significant portion of contracts for 
these services were for services that are likely to be closely 
associated with inherently governmental functions. We identified total 
obligations for categories of contracted services that often include 
services closely associated with inherently governmental functions 
based on DOD components' fiscal year 2012 inventory submission data. 
[Footnote 24] We compared those totals to the total obligations 
certified by DOD components as being for contractors performing 
closely associated with inherently governmental functions in the 
fiscal year 2012 certification letters. This analysis found 
significant gaps between these two categories, suggesting that some of 
the inventory review processes or methodologies may not be sufficient 
to accurately identify closely associated with inherently governmental 
functions. In contrast to the Navy and other defense agencies, even 
the Army's incomplete review identified that nearly half of its total 
obligations in these categories were for the performance of closely 
associated with inherently governmental functions (see figure 2). 
[Footnote 25] 

Figure 2: Comparison of Total Obligations for Contracts Which Often 
Involve Closely Associated with Inherently Governmental Functions to 
Obligations Reported for These Functions In Fiscal Year 2012 Inventory 
Certification Letters: 

[Refer to PDF for image: vertical bar graph] 

Department of Defense component: Army; 
Obligations for categories of contracted services which often involve 
closely associated with inherently governmental functions based on GAO 
analysis of DOD fiscal year 2012 inventory submission data: $9.1 
billion; 
Obligations for contractors performing closely associated with 
inherently governmental functions identified in DOD fiscal year 2012 
certification letters: $4.5 billion. 

Department of Defense component: Navy; 
Obligations for categories of contracted services which often involve 
closely associated with inherently governmental functions based on GAO 
analysis of DOD fiscal year 2012 inventory submission data: $7.8 
billion; 
Obligations for contractors performing closely associated with 
inherently governmental functions identified in DOD fiscal year 2012 
certification letters: $0.4 billion. 

Department of Defense component: Air Force; 
Obligations for categories of contracted services which often involve 
closely associated with inherently governmental functions based on GAO 
analysis of DOD fiscal year 2012 inventory submission data: $5.5 
billion; 
Obligations for contractors performing closely associated with 
inherently governmental functions identified in DOD fiscal year 2012 
certification letters: did not report. 

Department of Defense component: Other defense agencies; 
Obligations for categories of contracted services which often involve 
closely associated with inherently governmental functions based on GAO 
analysis of DOD fiscal year 2012 inventory submission data: $3.5 
billion; 
Obligations for contractors performing closely associated with 
inherently governmental functions identified in DOD fiscal year 2012 
certification letters: $0.3 billion. 

Source: GAO analysis of DOD's inventory of contracted services data. 
GAO-15-88. 

[End of figure] 

With regard to identifying contractor FTEs that may be performing 
inherently governmental functions or unauthorized personal services, 
only the Army identified such contractors during their fiscal year 
2012 inventory review. The Army reported that it had identified 62 
contractor FTEs performing inherently governmental functions and five 
contractor FTEs providing unauthorized personal services, both figures 
representing significant declines since fiscal year 2011. As noted 
previously, however, we found the Army's review of its fiscal year 
2012 inventory may not have included the minimum requirement of 80 
percent of contract functions. While the Air Force did not submit a 
certification letter in fiscal year 2012, Air Force officials told us 
that they had incorrectly identified contractors performing inherently 
governmental functions and unauthorized personal services in their 
2011 inventory review. 

However, neither the Army nor the Air Force provided information as to 
how they resolved the prior instances in which they found that 
contractors were performing such functions. We previously recommended 
in May 2013 that the Secretary of Defense instruct components to 
provide updated information in certification letters on how they 
resolved the instances of contractors performing inherently 
governmental functions or unauthorized personal services identified in 
prior inventory reviews.[Footnote 26] DOD partially concurred with 
this recommendation, stating that DOD would focus on the fiscal year 
2012 reporting requirements and that any instances of contractors 
performing inherently governmental functions or unauthorized personal 
services that persist from prior inventory reviews would be included 
and fully documented in the fiscal year 2012 and future inventory 
review processes. Further, DOD said it would verify that the 
certification letters contain a complete and accurate description of 
actions taken to resolve outstanding issues related to contractors 
performing these functions prior to closing the review process. 

Federal internal control standards call for managers to measure and 
assess performance over time to ensure effectiveness and efficiency of 
operations and compliance with applicable laws and regulations. 
[Footnote 27] Without accurate identification of the functions 
contractors are performing, DOD cannot be assured that proper 
oversight is in place or provide data to ensure that it is meeting 
statutory requirements to reduce, to the maximum extent practicable, 
the number of contractors performing closely associated with 
inherently governmental functions or assure that contractors are not 
performing inherently governmental functions. 

Fiscal Year 2013 Guidance Does Not Address All Reporting Challenges: 

DOD issued guidance applicable to the components' fiscal year 2013 
inventories in March 2014. To assist components' reviews, this 
guidance provides definitions for inherently governmental, closely 
associated with inherently governmental, personal services, and 
critical functions, consistent with the FAR and the Office of Federal 
Procurement Policy (OFPP) guidance.[Footnote 28] DOD's guidance, 
however, does not specify the percent of contract functions to be 
reviewed nor identify the basis to determine the percentage of 
contract functions to be reviewed. P&R officials indicated that the 
intent is for components to review all contract functions; however, 
some component officials we interviewed said it was not clear to them. 
The March 2014 guidance also indicates that components should review 
the nature or way the contract is performed and administered as well 
as the organizational environment within which it is operating beyond 
what can be accessed via a review of the information listed within the 
inventory, but does not provide specific approaches to do so. 

Uncertainties Continue in Implementing a Common Manpower Reporting 
Data System: 

A key factor to facilitate the components' review of the functions 
that contractors perform is the availability of accurate and reliable 
data. As we reported in May 2014, DOD officials noted that the lack of 
dedicated resources has been a key factor hindering implementation of 
its planned ECMRA, the common data system based on the Army's CMRA 
system.[Footnote 29] To address this factor and support the data 
collection efforts, DOD provided funding for six civilian FTEs for the 
Defense Human Resources Agency, starting in fiscal year 2015. We 
reported in May 2014 that DOD officials had anticipated these staff 
would comprise a new support office to coordinate DOD's efforts to 
define business processes for compiling, reviewing, and using the 
inventory. This effort has encountered a number of challenges, which 
officials noted may jeopardize the department's goal to fully 
implement ECMRA by fiscal year 2016. For example, the effort lacks a 
formal agreement, including roles and responsibilities, between the 
Assistant Secretary of Defense for Readiness and Force Management and 
the Defense Human Resources Agency, the parties responsible for 
implementing ECMRA and related business processes. As we concluded in 
our May 2014 report, DOD did not have a comprehensive plan with 
timeframes and milestones to measure its progress toward developing a 
common contractor manpower data system and associated business 
processes. 

More recently, a September 17, 2014 memorandum from the Acting 
Assistant Secretary of Defense for Readiness and Force Management 
appointed a Strategic Review and Planning Officer as the official 
responsible for identifying and developing enterprise solutions 
related to the inventory data collection requirements prescribed by 
title 10, U.S. Code, section 2330a. The official is authorized to 
identify, develop, and consider all reasonable options, in both the 
short and long-terms, and propose courses of action by December 1, 
2014 to P&R. Once a course of action is approved, the memorandum 
directs the official to develop a detailed implementation plan, but 
does not provide timeframes for completion. A P&R official told us 
that, until such time as there has been a decision whether to pursue a 
new approach or continue forward with implementation of ECMRA, DOD 
will defer using the additional resources allocated for the Defense 
Human Resources Agency. This review raises a question about whether 
DOD will continue to implement a DOD-wide inventory data collection 
system modeled after the Army's CMRA system or attempt to develop a 
new system. Until such time as DOD components are able to collect the 
required data for their inventories, the utility of their inventory 
reviews for making workforce mix decisions will be hindered. 

The Military Departments Have Not Developed Statutorily Required Plans 
or Identified Specific Responsibilities to Facilitate the Use of the 
Inventory: 

The military departments have not developed plans or enforcement 
mechanisms to use the inventory of contracted services to inform 
strategic workforce planning, workforce mix, and budget decision-
making processes, as statutorily required. Despite the lack of 
specific plans, the military departments have taken some initial steps 
to use the inventory to inform management decisions such as insourcing 
and estimating FTEs for budgetary purposes. Disparate offices are 
responsible for the various decision-making processes at the military 
departments, and the secretaries of the military departments have not 
assigned specific responsibility for coordinating among these offices 
to develop plans to use the inventory to inform such decisions. In 
part, the absence of accountable officials to integrate the use of the 
inventory leaves the department at continued risk of not complying 
with the applicable legislative requirements to use the inventory to 
support management decisions. 

Strategic Workforce Planning, Workforce Mix, and Insourcing Guidance 
Decisions Generally Do Not Require the Use of the Inventory: 

P&R has overall responsibility for developing and implementing DOD's 
strategic workforce plan to shape and improve the DOD's civilian 
workforce, including an assessment of the appropriate total force mix. 
P&R issued guidance that designated responsibility for the development 
of the strategic workforce plan to the Deputy Assistant Secretary of 
Defense for Civilian Personnel Policy, but did not require use of the 
inventory. This guidance predates the statutory requirement to use the 
inventory to inform strategic workforce planning. For example, the 
Fiscal Years 2013-2018 Strategic Workforce Plan, the most recent plan 
available at the time of our review, states that DOD's plans for 
identifying and assessing workforce mix will leverage the inventory of 
contracted services, but does not provide any additional details on 
using the inventory. 

None of the three military departments has developed a statutorily 
required plan or enforcement mechanism to use the inventory of 
contracted services and generally they have not developed guidance or 
processes for these purposes (see table 4). 

Table 4: Strategic Workforce Planning Guidance and Processes at the 
Three Military Departments: 

Plans and enforcement mechanisms; 
No documented plan and enforcement mechanism to provide for the use of 
the inventory of contracted services. 

Guidance: 
Air Force: No department-unique strategic workforce guidance. The Air 
Force issued a broad framework in July 2014 to guide long-range 
planning, but it does not mention the inventory of contracted services; 
Army: No department-unique strategic workforce guidance; 
Navy: No department-unique strategic workforce guidance. 

Processes; 
Air Force: Air Force acquisition and manpower officials report that 
data derived from the inventory - such as contractor name, direct 
labor hours, and full-time equivalents - are entered into a manpower 
document to provide historical perspective on where contracts were 
performed. The inventory data are not used in a planning capacity; 
Army: No processes in place to use the inventory to inform strategic 
workforce planning; 
Navy: In 2012, the Navy formed a Total Force Integration Board for 
managing the total force. The charter for this board, however, does 
not mention the inventory of contracted services and a manpower 
official reported that the board does not meet regularly. 

Source: GAO analysis of military department guidance and processes| 
GAO-15-88. 

[End of table] 

DOD has two department-wide policies for determining workforce mix--
DOD directive 1100.4 and DOD instruction 1100.22--but neither 
currently requires the use of the inventory to inform workforce mix 
planning. DOD Directive 1100.4, dated February 2005, provides general 
guidance concerning determination of manpower requirements, managing 
resources, and manpower affordability. According to P&R officials, 
revisions to this directive, which are currently under review, will be 
revised to explicitly require use of the inventory to inform budgeting 
and total force management decisions. DOD Instruction 1100.22, dated 
April 2010, provides manpower mix criteria and guidance for 
determining how individual positions should be designated based on the 
work performed. This instruction does not direct the military 
departments to develop a plan to use the inventory to inform 
management decisions, as DOD issued it before the enactment of the 
requirement for developing such plans. 

DOD's primary insourcing guidance is reflected in April 4, 2008 and 
May 28, 2009 memoranda.[Footnote 30] These memoranda reiterate 
statutory requirements by calling for DOD components and the military 
departments to use the inventory of contracted services to identify 
functions for possible insourcing and to develop a plan for converting 
these functions within a reasonable amount of time. Among the military 
departments, however, only Army has guidance and a process that 
requires use of the inventory of contracted services for insourcing. 
However, the military departments have not issued guidance for 
managing workforce mix that requires the use of the inventory of 
contracted services (see table 5). 

Table 5: Role of the Inventory of Contracted Services in Existing 
Workforce Mix and Insourcing Guidance and Processes at the Three 
Military Departments: 

Plans and enforcement mechanisms: 
No documented plan and enforcement mechanism to provide for the use of 
the inventory of contracted services. 

Guidance: 
Air Force: Three Air Force Instructions--38-201, issued in January 
2014, and 38-2 and 38-203 issued and updated in February 2013, 
respectively--provide guidance on complying with DOD's manpower mix 
policy, but do not discuss the inventory of contracted services in a 
planning capacity; 
Army: Army Regulation 570-4 "Manpower Management" issued in February 
2006 implements DOD's manpower mix directive, but pre-dates the 
requirements of subsection (f) and does not discuss the inventory of 
contracted services in a planning capacity. Army's July 2009 
memorandum, "Army Policy for Civilian Workforce Management and Service 
Contracts," identifies responsibility for development and execution of 
Army in-sourcing plans based on the inventory of contracted services. 
Army's May 2013 In-Sourcing Approval Authority memorandum provides 
guidance on the process for using the inventory of contracted services 
to inform in-sourcing actions; 
Navy: The Office of the Chief of Naval Operations' Instruction 
1000.16K, updated in October 2011, mentions use of the inventory of 
contracted services as a total workforce tool and provides some 
guidance on using the inventory to determine whether a function can be 
contracted. While this instruction links to the inventory of 
contracted services, it is not department-wide, as it does not apply 
to he Marine Corps. 

Processes: 
Air Force: Air Force officials stated that the department holds 
service contract review boards which have a role in the requirement 
approval process, among other things. According to the officials the 
review is in the beginning stages. However, it is not using the 
inventory to inform workforce mix and insourcing decisions; 
Army: Army uses the Panel for Documentation of Contractors review 
process to determine whether to insource a contracted function. 
Additionally, Army uses the Services Contract Approval Form, developed 
in 2009, to inform contract award and insourcing decisions; 
Navy: Navy is implementing DOD wide policy through its Service 
Requirement Review Boards, which include a process to consider whether 
requirements encompass inherently governmental or closely associated 
with inherently governmental functions, among other things, but does 
not require use of the inventory of contracted services to do so. 

Source: GAO analysis of DOD guidance and processes. GAO-15-88. 

[End of table] 

Programming and Budget Decisions Generally Do Not Require the Use of 
the Inventory, Though Data on Estimated Contractor FTEs Are Included 
in the Budget: 

DOD's Financial Management Regulation provides, among other things, 
guidance to the military departments on budget formulation and 
presentation; however, these regulations do not require the military 
departments to use the inventory in formulating and presenting their 
budgets.[Footnote 31] At the military department level, the Air Force 
has issued additional instructions in terms of budget formulation and 
presentation. However, the Air Force's guidance does not require the 
use of the inventory. 

The Comptroller has issued supplemental guidance requiring, among 
other things, that the military departments and defense components 
provide information on the number of FTEs as required under 10 U.S.C. 
§ 235, but this guidance does not require reporting the amount of 
funding requested for contracted services. The Comptroller guidance 
for budget submissions from all components has remained similar for 
the past three fiscal years, instructing DOD components to ensure that 
contractor FTEs reported in the budget exhibit are consistent with 
those in the DOD's inventory of contracted services.[Footnote 32] Both 
Navy and Air Force officials reported that they used the inventory of 
contracted services to estimate the number of contractor FTEs for 
inclusion in their budget request. The Army budget office does not 
have a process to use the inventory to inform budgeting and could not 
identify how the Army estimated FTEs in the Army's budget submission 
(see table 6). 

Table 6: Role of the Inventory of Contracted Services in Existing 
Budgeting Guidance and Processes at the Three Military Departments: 

Plans and enforcement mechanisms: 
No documented plan and enforcement mechanism to provide for the use of 
the inventory of contracted services. 

Guidance: 
Air Force: Air Force Instructions 65-601, Volumes 1-3 on financial 
management do not link to using the inventory of contracted services. 
The Air Force also follows guidance issued by the DOD Comptroller; 
Army: No Army specific budget guidance. The Army follows guidance 
issued by the DOD Comptroller; 
Navy: No Navy specific budget guidance. The Navy follows guidance 
issued by the DOD Comptroller. 

Processes: Budget Formulation and Execution; 
Air Force: The Air Force does not have a process for using the 
inventory of contracted services for budget formulation and execution; 
Army: The Army does not have a process for using the inventory of 
contracted services for budget formulation and execution; 
Navy: The Navy does not have a process for using the inventory of 
contracted services for budget formulation and execution; 

Processes: Estimating Contractor Full-time Equivalents (FTEs); 
Air Force: To estimate contractor FTEs, the Air Force budget office 
uses the inventory to arrive at average cost of contractors. The Air 
Force then divides the contractor dollar amounts reported in the 
budget submission to arrive at an estimated number of contractor FTEs 
and submits this number for the DOD budget exhibit; 
Army: The Army budget office does not use the inventory of contracted 
services to inform budgeting or estimate contractor FTEs; 
Navy: To estimate contractor FTEs, the Navy budget office uses the 
inventory to arrive at average cost of contractors. The Navy then 
divides the contractor dollar amounts reported in the budget 
submission to arrive at an estimated number of contractor FTEs and 
submits this number for the DOD budget exhibit. 

Source: GAO analysis of DOD programming and budget guidance. GAO-15-88. 

[End of table] 

Within the Military Departments, Responsibility for Developing a Plan 
to Use the Inventory for Management Decisions is Not Clearly Assigned: 

Within the military departments various offices are responsible for 
conducting the compilation and review of the inventory of contracted 
services, managing workforce mix decisions, and conducting budgeting 
(see table 7). 

Table 7: Offices Responsible for Workforce Planning, Budgeting, and 
the Inventory of Contracted Services at the Military Departments: 

Inventory of Contracted Services: 
Air Force: Assistant Secretary of the Air Force for Acquisition; 
Army: Army Manpower and Reserve Affairs; 
Navy: Navy Research, Development, and Acquisition. 

Strategic Workforce Planning: 
Air Force: Deputy Chief of Staff, Manpower, Personnel, and Services; 
Assistant Secretary of the Air Force for Manpower and Reserve Affairs; 
Army: Army Manpower and Reserve Affairs; 
Navy: Navy Manpower and Reserve Affairs. 

Manpower Mix/Insourcing: 
Air Force: Deputy Chief of Staff, Manpower, Personnel, and Services; 
Assistant Secretary of the Air Force for Manpower and Reserve Affairs; 
Army: Army Manpower and Reserve Affairs; 
Assistant Secretary of the Army for Acquisition, Logistics, and 
Technology; 
Navy: Navy Manpower and Reserve Affairs; 
Navy Research, Development, and Acquisition. 

Budgeting [including forecasting and execution]: 
Air Force: A8 Office, Strategic Plans and Programs; 
Air Force Financial Management and Comptroller; 
Army: G8, Program Analysis & Evaluation; 
Army Financial Management and Comptroller; 
Navy: N8, Integration of Capabilities and Resources; 
Navy, Financial Management and Comptroller. 

Source: GAO analysis of DOD guidance and processes. GAO-15-88. 

[End of table] 

Based on our analysis, however, no single office or individual is 
responsible for leading or coordinating efforts between the various 
functional areas to develop a plan and enforcement mechanism to use 
the inventory to inform these processes. During interviews, officials 
at each of the military departments were uncertain who was responsible 
for developing a plan and enforcement mechanisms to use the inventory 
to inform management decisions. For example, the Assistant Secretary 
of the Army for Acquisition, Logistics, and Technology indicated that 
the responsibility for developing the Army's plan fell to the manpower 
community, but a manpower official stated his office is not explicitly 
tasked with this responsibility. Internal control standards in the 
federal government state that management should establish an 
organizational structure, delegate authority for key roles, and assign 
responsibility to enable an organization to achieve management 
objectives and to comply with laws.[Footnote 33] The absence of 
clearly defined roles and responsibilities for integrating the use of 
the inventory in these processes, as appropriate, leaves the 
department at continued risk of not complying with the applicable 
legislative requirements to leverage the inventory to support 
management decisions. 

Conclusions: 

In the six years since DOD first submitted its initial department-wide 
inventory of contracted services and conducted the associated reviews, 
DOD's progress remains uneven and uncertain. DOD components addressed 
more of the reporting elements prescribed by P&R and AT&L guidance, 
but it is less clear that the fiscal year 2012 reviews were any more 
informative than prior reviews in certain key areas. The Air Force 
failed to submit an inventory review certification letter while the 
Army submitted incomplete review data for several major commands. In 
addition, DOD components may not have fully identified all instances 
of contractors performing closely associated with inherently 
governmental functions. DOD's fiscal year 2013 guidance does not fully 
address some of the shortcomings our review identified, including how 
to identify contracts to review or the methodologies or approaches to 
use to ensure the components' inventory reviews adequately assess 
contractor activities. As a result, components may not fully identify 
instances of contractors providing services that are closely 
associated with inherently governmental functions. Without a thorough 
review of contractor activities, DOD risks becoming overly reliant on 
contractors to support core missions. 

Further, it is up to the department to provide a system that is 
capable of providing accurate and reliable data to support these 
reviews. Continued delays and uncertainties in implementing its 
planned ECMRA system hinder achievement of this objective. We had 
previously recommended that DOD develop a plan of action with 
timeframes and milestones to measure DOD's progress in implementing a 
common data system, but DOD has yet to do so. DOD identified the lack 
of dedicated resources as the primary obstacle to resolving technical 
issues, including help desk support and establishing common processes 
across the department. DOD allocated fiscal year 2015 funding to 
support this effort; however, DOD is delaying committing these 
resources pending the completion of a review to identify and develop 
appropriate enterprise solutions, including short-and long-term 
options, no later than December 1, 2014. Continued delays in 
developing an implementation plan increases the risk that DOD will be 
unable to collect the statutorily required data needed to serve as the 
basis for DOD's inventory review process. 

Additionally, the military departments generally do not have plans to 
use the inventories for strategic workforce planning, workforce mix 
and insourcing decisions, or budget and programming decisions. The 
same is generally true for the processes that underlie these 
decisions, with the exception of the Army's efforts to use the 
inventory and associated review process to help inform workforce mix 
and insourcing decisions. One factor contributing to this condition is 
the fact that multiple offices are responsible for performing tasks 
within their specific area of responsibility, but there are no offices 
or individuals that have been specifically tasked to lead or 
coordinate efforts to facilitate the use of the inventory within each 
of the military departments. Internal control standards state that 
management should establish an organizational structure, delegate 
authority for key roles, and assign responsibility to enable an 
organization to achieve management objectives and to comply with laws. 
Entrusting one or more individuals with the responsibility for 
carrying out these requirements is likely to produce more positive 
results quicker than if DOD continues to engage in piecemeal and ad 
hoc efforts within each functional area. The absence of clearly 
defined roles and responsibilities for integrating the use of the 
inventory in these processes, as appropriate, leaves the department at 
continued risk of not complying with the applicable legislative 
requirements to leverage the inventory to support management decisions. 

Recommendations for Executive Action: 

To better implement the requirements for reviewing the inventory of 
contracted services, we recommend that the Under Secretary of Defense 
for Acquisition, Technology and Logistics and the Under Secretary of 
Defense for Personnel and Readiness work jointly to revise annual 
inventory review guidance to clearly identify the basis for selecting 
contracts to review and to provide approaches the components may use 
to conduct inventory reviews that ensure the nature of how the 
contract is being performed is adequately considered. If DOD intends 
for components to review less than 100 percent of its contracts, then 
the guidance should clearly identify the basis for selecting which 
contracted functions should be reviewed. 

To help facilitate the department's stated intent to develop a common 
data collection system to fully collect statutorily required data, we 
recommend that the Under Secretary of Defense for Personnel and 
Readiness approve a plan of action, with timeframes and milestones, 
for rolling out and supporting a department-wide data collection 
system as soon as practicable after December 1, 2014. Should a 
decision be made to use or develop a system other than the e-CMRA 
system currently being fielded, we recommend that the Under Secretary 
of Defense for Personnel and Readiness document the rationale for 
doing so and ensure that the new approach will provide data that 
satisfies the statutory requirements for the inventory. 

To help ensure that the inventory of contracted services is integrated 
into key management decisions as statutorily required, we recommend 
that the Secretaries of the Army, Navy, and Air Force identify an 
accountable official within their departments with responsibility for 
leading and coordinating efforts across their manpower, budgeting, and 
acquisition functional communities and, as appropriate, revise 
guidance, develop plans and enforcement mechanisms, and establish 
processes. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to DOD for comment. In its written 
comments, which are reprinted in appendix III, DOD concurred with our 
recommendations and described the actions it plans to take though it 
did not provide timeframes for completing such actions. DOD also 
provided technical comments, which we incorporated in the report as 
appropriate. 

In response to our recommendation to revise its inventory review 
guidance to provide more clarity on which contracted functions should 
be reviewed and to provide approaches the components may use to ensure 
that the nature of how the contract is being performed is considered, 
the department noted it is currently enhancing its guidance for the 
fiscal year 2014 inventory of contracted services and intends to have 
components review and certify 100 percent of the services reported in 
their respective inventory. DOD did not address whether DOD's guidance 
will provide approaches components may use to conduct inventory 
reviews to ensure contract performance is adequately considered. There 
may be no singular approach appropriate for all DOD components; 
however, DOD could provide a range of suggested approaches to ensure 
components accurately identify functions performed. While we 
appreciate DOD's actions to address the recommendation, the fact that 
only seven of the components fully addressed each element contained in 
AT&L and P&R's previous guidance underscores, in our view, the need 
for more direct involvement by DOD to ensure compliance. 

In response to our recommendation to approve a plan of action with 
timeframes and milestones to help facilitate the development of a 
common data collection system, DOD noted that all DOD components are 
using ECRMA to facilitate compilation of their respective inventory of 
contracted services. DOD agreed that if the Department decides to move 
away from ECMRA, the decision will be fully documented, ensuring 
satisfaction of statutory requirements. 

In response to our recommendation to identify an accountable official 
within the military departments to help ensure the inventory of 
contracted services is integrated into key management decisions and to 
coordinate efforts across manpower, budgeting and acquisition 
communities, DOD agreed. DOD also indicated that a cognizant 
accountable official should be identified at the remaining defense 
components (e.g. defense agencies, field activities, and combatant 
commands). While our work in this area focused on the military 
departments, we agree that it is important for components across DOD 
to ensure each organization develops a plan and enforcement mechanisms 
for using the inventory of contracted services to inform management 
decisions. 

We are sending copies of this report to the appropriate congressional 
committees, the Secretary of Defense, the Under Secretary of Defense 
for Acquisition, Technology, and Logistics, the Under Secretary of 
Defense for Personnel and Readiness, the Secretaries of the Army, Air 
Force, and the Navy, and other interested parties. In addition, the 
report is available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-4841 or dinapolit@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who made key contributions 
to this report are listed in appendix IV. 

Signed by: 

Timothy J. DiNapoli: 
Director: 
Acquisition and Sourcing Management: 

List of Committees: 

The Honorable Carl Levin: 
Chairman: 
The Honorable James M. Inhofe: 
Ranking Member: 
Committee on Armed Services: 
United States Senate: 

The Honorable Richard J. Durbin: 
Chairman: 
The Honorable Thad Cochran: 
Ranking Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
United States Senate: 

The Honorable Howard P. "Buck" McKeon: 
Chairman: 
The Honorable Adam Smith: 
Ranking Member: 
Committee on Armed Services: 
House of Representatives: 

The Honorable Rodney Frelinghuysen: 
Chairman: 
The Honorable Pete Visclosky: 
Ranking Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

Section 951(a) of the National Defense Authorization Act for Fiscal 
Year 2014 directs GAO to report, for fiscal years 2014, 2015, and 
2016, on DOD's implementation of title 10 U.S. Code section 2330a 
subsections (e) and (f).[Footnote 34] To satisfy the mandate for 2014, 
we assessed DOD's efforts to (1) implement subsection (e) to review 
contracts and activities in the inventory of contracted services for 
the fiscal year 2012 inventory and (2) implement subsection (f) to 
develop plans and processes to inform how the inventory will be used 
to facilitate strategic workforce planning, workforce mix, and budget 
decisions. We used data from the fiscal year 2012 inventory as it was 
the most recent inventory at the time of our review. 

To assess the extent to which DOD components--to include the three 
military departments and the defense agencies--implemented the 
required review of contracts and activities in the inventory of 
contracted services pursuant to subsection(e), for the fiscal year 
2012 inventory, we examined the guidance related to the fiscal year 
2012 inventory review process which the Office of the Under Secretary 
of Defense for Acquisition, Technology, and Logistics (AT&L) and the 
Acting Under Secretary of Defense for Personnel and Readiness (P&R) 
issued on February 4, 2013. The February 2013 guidance requires 
components to certify completion of the review and report on seven 
elements including the contract selection criteria and methodologies 
used to conduct the reviews; the extent to which contractors were 
found to be performing certain functions, to include inherently 
governmental and closely associated with inherently governmental; and 
to the extent necessary, a plan to realign performance of such 
functions to government performance.[Footnote 35] We analyzed all 
unclassified fiscal year 2012 certification letters submitted by 32 
components to P&R as of September 2014 to determine if components 
reported on all seven required elements. We did not analyze any 
classified certification letters submitted, such as that by the 
Defense Intelligence Agency. 

We also reviewed the Office of Federal Procurement Policy's (OFPP) 
November 5, 2010 guidance for civilian agencies' service contract 
inventories. This guidance directs agencies to give priority 
consideration to reviewing certain categories of contracted services 
that the guidance and GAO's prior work have indicated often include 
closely associated with inherently governmental functions. The 
guidance identifies 15 product service codes describing these 
categories of contracted services. We reviewed the total amount DOD 
components obligated for closely associated with inherently 
governmental functions with the total amount they reported obligating 
for the categories of contracted services identified in the OFPP's 
guidance and two additional product service codes identified in GAO's 
prior work to compare the dollars obligated and contractor full-time 
equivalents (FTEs) reported for these product services codes.[Footnote 
36] We did not independently assess the accuracy or reliability of the 
underlying data supporting the components' inventories of contracted 
services and associated reviews. Our previous work, however, 
identified data limitations with those DOD components using data from 
FPDS-NG as the basis for their inventories.[Footnote 37] We discuss 
these limitations in the report, as appropriate. 

In performing our work to assess the extent to which DOD implemented 
subsection (e) to review contracts and activities in the inventory of 
contracted services for the fiscal year 2012 inventory we interviewed 
cognizant officials from AT&L; P&R; the Under Secretary of Defense 
(Comptroller); the Departments of the Army, Navy, and Air Force; and 
three defense components - the Defense Logistics Agency (DLA); the 
Defense Threat Reduction Agency (DTRA), and the Office of the Director 
of Administration and Management (ODA&M). We selected the Army, Navy, 
and Air Force for additional review because they represented about 74 
percent of the obligations reported in the inventory and selected DLA 
and DTRA, because they reported having the most instances of 
contractors performing closely associated with inherently governmental 
functions, as expressed in contractor FTEs. We selected ODA&M because 
they reported having the fewest contractor FTEs performing closely 
associated with inherently governmental functions, despite having high 
obligations for professional services and program management services, 
two categories of contracted services known to often include closely 
associated with inherently governmental functions. [Footnote 38] 

To assess the extent to which DOD components have developed plans and 
processes to use the inventory to inform management decisions pursuant 
to subsection (f), we reviewed defense-wide and military department-
specific strategic planning, manpower mix, and budgeting documentation 
and interviewed officials responsible for developing and using this 
guidance. To determine whether DOD guidance informing strategic 
planning, manpower mix and budgeting calls for the use of the 
inventory of contracted services in planning processes, we reviewed 
the DOD's Fiscal Year 2013-2018 Strategic Workforce Plan Report and 
associated guidance for completing the plan, DOD's instruction on 
manpower mix criteria, DOD's memoranda guiding the conversion of 
contracted functions to government functions, and guidance issued by 
the Comptroller that informed the fiscal year 2013, 2014, and 2015 
budget submissions. When applicable we reviewed workforce mix 
instructions and budgeting regulations. In addition we reviewed 
memoranda, slides, and meeting minutes to review processes that the 
military departments had underway to determine if these processes 
addressed the requirements of title 10 U.S.C. § 2330a(f). 

In performing our work to assess the extent to which DOD components 
have developed plans and processes to use the inventory to inform 
management decisions pursuant to subsection (f) we interviewed 
cognizant officials from AT&L, P&R and the Comptroller, and the three 
military departments. We discussed identification of a cognizant 
official for the plans and processes with acquisition, manpower, 
programming, and budgeting officials. 

In addition, we evaluated DOD's progress in implementing a common data 
system since our most recent report in May 2014.[Footnote 39] To do 
so, we reviewed existing documentation including memoranda, planning 
documents, and guidance for establishing a common data system. We also 
interviewed officials from P&R to discuss progress toward the common 
system and associated business processes. 

We conducted this performance audit from May 2014 to November 2014 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 audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on audit objectives. 

[End of section] 

Appendix II: Comparison of Components' Identification of Contractors 
Providing Services Closely Associated With Inherently Governmental 
Functions in their Fiscal Year 2011 and 2012 Certification Letters: 

Component: Army; 
2011: 44,541; 
2012: 27,378. 

Component: Air Force[A]; 
2011: 1,398; 
2012: Did not report. 

Component: Navy; 
2011: The Navy did not identify the number of FTEs, but noted they 
have 25 contracts that contained these functions; 
2012: 2,524. 

Component: Defense Advanced Research Projects Agency; 
2011: The agency did not identify the number of FTEs in current 
contracts, but noted they have contracts that contained these 
functions; 
2012: 115. 

Component: Defense Commissary Agency; 
2011: The agency did not identify the number of FTEs, but noted that 
they had contractors performing these functions; 
2012: 0. 

Component: Defense Contract Audit Agency; 
2011: 0; 
2012: Did not report. 

Component: Defense Contract Management Agency; 
2011: 0; 
2012: 2 contracts. 

Component: Defense Finance and Accounting Service; 
2011: 0; 
2012: 0. 

Component: Defense Human Resource Activity; 
2011: 0; 
2012: 0. 

Component: Defense Information Systems Agency; 
2011: 0; 
2012: 0. 

Component: Defense Logistics Agency; 
2011: The agency did not identify the number of FTEs, but noted that 
4.5 percent of their sample of more than 50 percent of contract 
actions contained these functions; 
2012: 475. 

Component: Defense Media Activity; 
2011: 0; 
2012: 0. 

Component: Defense Micro-Electronics Activity; 
2011: Did not report; 
2012: 0. 

Component: Defense Security Cooperation Agency; 
2011: 0; 
2012: 0. 

Component: Defense Security Service; 
2011: 0; 
2012: 164. 

Component: Defense Threat Reduction Agency; 
2011: The agency did not identify the number of FTEs, but noted that 
several contracts contained these functions; 
2012: 261. 

Component: Department of Defense Education Activity; 
2011: 0; 
2012: 0. 

Component: Joint Chiefs of Staff; 
2011: 0; 
2012: 0. 

Component: Missile Defense Agency; 
2011: 0; 
2012: 89. 

Component: Office of the Secretary of Defense; Washington Headquarters 
Service; Pentagon Force Protection Agency[B]; 
2011: The components did not identify the number of FTEs, but reported 
that 24 out of 950 contracts consolidated from the three components 
had contractors performing these functions; 
2012: 1. 

Component: Test Resource Management Center; 
2011: 0; 
2012: 0. 

Component: Tricare Management Activity; 
2011: The activity did not identify the number of FTEs, but stated 
that some contracts contained these functions; 
2012: 2. 

Component: United States Africa Command; 
2011: 0; 
2012: 0. 

Component: United States Central Command; 
2011: Did not report; 
2012: 25. 

Component: United States European Command; 
2011: 0; 
2012: 0. 

Component: United States Forces Korea; 
2011: Did not report; 
2012: 0. 

Component: United States Northern Command; 
2011: The commands did not identify the number of FTEs, but noted that 
"some requirements" contained these functions; 
2012: 171. 

Component: United States Special Operations Command; 
2011: 0; 
2012: 106. 

Component: United States Strategic Command; 
2011: Did not report; 
2012: 0. 

Component: United States Southern Command; 
2011: 0; 
2012: Did not report. 

Component: United States Transportation Command; 
2011: 0; 
2012: 0. 

Source: GAO-13-391 and GAO analysis of DOD Certification Letters for 
fiscal years 2011 and 2012. GAO-15-88. 

[A] As of September 2014, the Air Force has yet to provide a 
certification letter for the fiscal year 2012 inventory identifying 
contractor FTEs in either category. Further, the fiscal year 2011 data 
from the Air Force were based on preliminary estimates, and the Air 
Force did not provided a final certification letter for fiscal year 
2011. 

[B] The Office of the Secretary of Defense, Director of Administration 
and Management submitted a consolidated review on behalf of the Office 
of the Secretary of Defense, Washington Headquarters Service, and the 
Pentagon Force Protection Agency, but did not specifically identify 
which components reported contractors performing closely associated 
with inherently governmental functions. In addition, officials 
responsible for the consolidated review identified an error in the 
certification letter and updated it to reflect 14.7 contractor FTEs 
performing closely associated with inherently governmental functions. 

[End of table] 

[End of section] 

Appendix III: Comments from the Department of Defense: 

Office of The Assistant Secretary Of Defense: 
Readiness and Force Management: 
4000 Defense Pentagon: 
Washington, DC 20301-4000: 

November 4, 2014: 

Mr. Timothy J. DiNapoli: 
Director, Acquisition and Sourcing Management: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548: 

Dear Mr. DiNapoli: 

This is the Department of Defense (DoD) response to' the GAO Draft 
Report, GAO-15-88, 'Defense Contractors: Additional Actions needed to 
Facilitate the Use of the DoD's Inventory of Contracted Services' 
dated October 3, 2014 (GAO Code 1000033). The Department appreciates 
the GAO's work on this engagement, as well as the opportunity to
review and comment on this draft report. 

The Department agrees with the GAO's assessment that the Department 
continues to face challenges related to the statutorily required 
review of the Inventory of Contracted Services. 

Recommendation 1: To better implement the requirements for reviewing the
inventory of contracted services, the Government Accountability Office 
(GAO) recommends that the Under Secretary of Defense for Acquisition, 
Technology and Logistics, and the Under Secretary of Defense for 
Personnel and Readiness work jointly to revise annual inventory review 
guidance to clearly identify the basis for selecting contracts to 
review and to provide approaches the components may use to conduct
inventory reviews that ensure the nature of how the contract is being 
performed is adequately considered. If DoD intends for components to 
review less than 100 percent of its contracts, then the guidance 
should clearly identify the basis for selecting which contracted 
functions should be reviewed. 

DoD Response: Concur. The Department is currently staffing enhanced 
guidance for the fiscal year 2014 inventory of contracted services. 
The DoD intends to have components review and certify, to the Office 
of the Under Secretary of Defense for Personnel and Readiness, 100% of 
the services reported in their respective inventory. 

Recommendation 2: To help facilitate the department's stated intent to 
develop a common data collection system to fully collect statutorily 
required data, we recommend that the Under Secretary of Defense for 
Personnel and Readiness approve a plan of action, with timeframes and 
milestones for rolling out and supporting a department wide data 
collection system as soon as practicable after December 1, 2014. 
Should a decision be made to use or develop a system other than the e-
CMRA system currently being fielded, we recommend that they Under 
Secretary of Defense for Personnel and Readiness document the 
rationale for doing so and ensure that the new approach will provide 
data that satisfies the statutory requirements of the inventory. 

DoD Response: Concur. A common data collection system, the Enterprise-
wide Contractor Manpower Reporting Application (ECMRA), currently 
exists and is being used by all DoD Components to facilitate 
compilation of their respective annual inventory of contracted 
services. The Department agrees that if, as a result of the review
being conducted by the Strategic Review and Planning Officer appointed 
by the Acting Assistant Secretary of Defense for Readiness and Force 
Management, a decision is made to move away from ECMRA usage then that 
decision will be fully documented and rationalized, ensuring 
satisfaction of statutory requirements. 

Recommendation 3: To help ensure that the inventory of contracted 
services is integrated into key management decisions as statutorily 
required, we recommend that the Secretaries of the Army, Navy, and Air 
Force identify an accountable official within their departments with 
responsibility for leading and coordinating efforts across their
manpower, budgeting and acquisition functional communities and as, 
appropriate, revise guidance, develop plans and enforcement 
mechanisms, and establish processes. 

DoD Response: Concur. My office received input from the collateral 
action offices of the military departments for this review. Each 
office concurred with the GAO's recommendation. The Department also 
believes that cognizant accountable officials should be identified for 
DoD Components outside of the military Departments (e.g., Defense 
Agencies, Field Activities, Combatant Commands, etc.) to ensure 
coordinated efforts within those organizations as well. 

The Department looks forward to working with the GAO over the next 
several years on the multiple engagements relative to our efforts in 
this critical area as directed by section 951 of the fiscal year 2014 
National Defense Authorization Act. Should you have any questions, 
please contact the primary action officers for this engagement, Ms. 
Amy Parker (703-697-1735 or amv.l.parker26.civ@mail.mil) and Mr. 
Thomas Hessel (703-697-3402 or thomas.j.hessel.civ@mail.mil). 

Sincerely, 

Signed by: 

Rich Robbins: 
Director, Total Force Planning & Requirements 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Timothy J. DiNapoli, (202)512-4841 or dinapolit@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above Penny Berrier, Assistant 
Director; MacKenzie Cooper; Kate Eberle; Kristine Hassinger; John 
Krump; Caryn E. Kuebler; Jean McSween; Oziel Trevino; and Candice 
Wright made key contributions to this report. 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation, and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the 
performance and accountability of the federal government for the 
Am[End of section] 

Footnotes: 

[1] Closely associated with inherently governmental functions are 
those functions that while not inherently governmental, may approach 
being in that 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 the contract. 
Section 7.503(d) of the Federal Acquisition Regulation (FAR) provides 
examples of such functions. 

[2] Inherently governmental function means, as a matter of policy, a 
function that is so intimately related to the public interest as to 
mandate performance by government employees and includes functions 
that require the exercise of discretion in applying government 
authority, or making value judgments in making decisions for the 
government. Section 7.503(c) of the FAR provides examples of such 
functions. Contracts shall not be used for the performance of 
inherently governmental functions. FAR § 7.503(a). See also, FAR § 
2.101. 

[3] An FTE is a standard measure of labor that equates to one year of 
full-time work (labor hours as defined by the Office of Management and 
Budget Circular A-11 each year). To report the number of contractor 
FTEs, one would divide the number of direct labor hours reported by a 
contractor for each contracted service by the number of labor hours in 
a federal employee work year, which was 2,080 in fiscal year 2012. 

[4] Pub. L. No. 113-66 (2013). 

[5] In September 2014, the DOD Inspector General found that not all 
DOD components, as defined by DOD Directive 5100.01, participated in 
the fiscal year 2012 inventory of contracted services process. The DOD 
Inspector General recommended that DOD identify the components 
required to submit an inventory of contracted services. Department of 
Defense Inspector General, "Independent Auditor's Report on Agreed-
Upon Procedures for DOD Compliance With Service Contract Inventory 
Compilation and Certification Requirements for FY 2012", DODIG-2014-
114, (Alexandria, VA: Sept. 17, 2014). 

[6] ODA&M is being realigned and will merge with the Office of the 
Deputy Chief Management Officer. 

[7] National Defense Authorization Act for Fiscal Year 2002, Pub. L. 
No. 107-107, § 801(c) (2001). 

[8] National Defense Authorization Act for Fiscal Year 2008, Pub. L. 
No. 110-181, § 807(a). 

[9] Estimates of full-time equivalents may be used where such data are 
not available and cannot reasonably be made available in a timely 
manner for the purposes of the inventory. 10 U.S.C. § 2330a(c)(2)(E). 

[10] A personal services contract means a contract that, by its 
express terms or as administered, makes the contractor personnel 
appear to be, in effect, government employees. Agencies shall not 
award personal services contracts unless specifically authorized by 
statute to do so. FAR §§ 2.101, 37.104(b). 

[11] 10 U.S.C. § 2330a(c)(2). 

[12] The Army also submitted an inventory of contracted services for 
fiscal year 2007. 

[13] GAO, Defense Acquisitions: Continued Management Attention Needed 
to Enhance Use and Review of DOD's Inventory of Contracted Services, 
[hyperlink, http://www.gao.gov/products/GAO-13-491] (Washington, D.C.: 
May 23, 2013). 

[14] [hyperlink, http://www.gao.gov/products/GAO-13-491]. 

[15] 10 U.S.C. § 2330a(c)(1)(A)(iii). 

[16] Pub. L. No. 112-81, § 808(c) (2011). 

[17] GAO, Defense Acquisitions: Further Action Needed to Better 
Implement Requirements for Conducting Inventory of Service Contract 
Activities, [hyperlink, http://www.gao.gov/products/GAO-11-192] 
(Washington, D.C.: Jan. 14, 2011). 

[18] GAO, Defense Acquisitions: Further Actions Needed to Improve 
Accountability for DOD's Inventory of Contracted Services, [hyperlink, 
http://www.gao.gov/products/GAO-12-357] (Washington, D.C.: Apr. 6, 
2012). 

[19] [hyperlink, http://www.gao.gov/products/GAO-12-357]. 

[20] [hyperlink, http://www.gao.gov/products/GAO-13-491]. 

[21] GAO, Defense Acquisitions: Update on DOD's Efforts to Implement a 
Common Contractor Manpower Data System, [hyperlink, 
http://www.gao.gov/products/GAO-14-491R] (Washington, D.C.: May 19, 
2014). 

[22] The Army reports invoiced dollar amounts from its CMRA system in 
its inventory of contracted services rather than obligations from FPDS-
NG. 

[23] [hyperlink, http://www.gao.gov/products/GAO-13-491]. 

[24] We used Office of Federal Procurement Policy (OFPP) guidance and 
our prior work to identify product service codes associated with 
contracts that often include closely associated with inherently 
governmental functions. OFPP, Memorandum for Chief Acquisition 
Officers and Senior Procurement Executives, Service Contract 
Inventories, November 5, 2010 and GAO, Managing Service Contracts: 
Recent Efforts to Address Associated Risks Can Be Further Enhanced, 
[hyperlink, http://www.gao.gov/products/GAO-12-87], (Washington, D.C. 
Dec. 7, 2011). 

[25] As we previously reported, the Army has a two-pronged approach to 
reviewing the activities in the inventory. First, it uses a pre-award 
process that includes detailed checklists to help assess whether the 
proposed contract includes services that are inherently governmental 
functions or inappropriate personal services, and to identify services 
that are closely associated with inherently governmental functions. 
Second, the Army uses a post-award review, the Panel for Documentation 
of Contractors, to review information provided by commands to make 
certain determinations such as whether a contractor's performance of 
closely associated with inherently governmental functions has evolved 
into the performance of inherently governmental functions. The Panel 
for Documentation of Contractors also evaluates whether sufficient in-
house capacity exists to oversee the contracted workforce. [hyperlink, 
http://www.gao.gov/products/GAO-13-491]. 

[26] [hyperlink, http://www.gao.gov/products/GAO-13-491]. 

[27] GAO, Auditing and Financial Management: Standards for Internal 
Control in the Federal Government, [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C. Nov. 
1, 1999). 

[28] OFPP Policy Letter 11-01, Performance of Inherently Governmental 
and Critical Functions, 76 Fed. Reg. 56227. 

[29] [hyperlink, http://www.gao.gov/products/GAO-14-491R]. 

[30] The insourcing memoranda are the April 4, 2008 memorandum, 
"Implementation of Section 324 of the National Defense Authorization 
Act for Fiscal Year 2008 (FY 2008 NDAA)--Guidelines and Procedures on 
In-Sourcing New and Contracted Out Functions" and the May 28, 2009 
memorandum, "In-Sourcing Contracted Services - Implementation 
Guidance." 

[31] DOD 7000.14-R Department of Defense Financial Management 
Regulation. 

[32] The Comptroller's guidance was issued in three memoranda: the 
December 16, 2011 memorandum, "Fiscal Year (FY) 2013 President's 
Budget Submission"; the February 5, 2013 memorandum, "Fiscal Year (FY) 
2014 President's Budget Submission"; and the January 29, 2014 
memorandum, "Fiscal Year (FY) 2015 President's Budget Submission". 

[33] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[34] Pub. L. No. 113-66 (2013). 

[35] In September 2014, the DOD Inspector General found that not all 
DOD components, as defined by DOD Directive 5100.01, participated in 
the fiscal year 2012 inventory of contracted services process. 
Further, they reported that P&R officials explained the decision on 
whether a component is required to participate in the inventory 
process is regularly assessed. The DOD Inspector General recommended 
that DOD identify the components required to submit an inventory of 
contracted services. Department of Defense Inspector General, 
"Independent Auditor's Report on Agreed-Upon Procedures for DOD 
Compliance With Service Contract Inventory Compilation and 
Certification Requirements for FY 2012", DODIG-2014-114, (Alexandria, 
VA: Sept. 17, 2014). 

[36] GAO, Managing Service Contracts: Recent Efforts to Address 
Associated Risks Can Be Further Enhanced, [hyperlink, 
http://www.gao.gov/products/GAO-12-87], (Washington, D.C. Dec. 7, 
2011). 

[37] GAO, Defense Acquisitions: Continued Management Attention Needed 
to Enhance Use and Review of DOD's Inventory of Contracted Services, 
[hyperlink, http://www.gao.gov/products/GAO-13-491] (Washington, D.C.: 
May 23, 2013). 

[38] ODA&M is being realigned and will merge with the Office of the 
Deputy Chief Management Officer. 

[39] GAO, Defense Acquisitions: Update on DOD's Efforts to Implement a 
Common Contractor Manpower Data System, [hyperlink, 
http://www.gao.gov/products/GAO-14-491R] (Washington, D.C.: May 19, 
2014). 

[End of section] 

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