GAO-08-572T, Defense Management: DOD Needs to Reexamine Its Extensive Reliance on Contractors and Continue to Improve Management and Oversight


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Testimony: 

Before the Subcommittee on Readiness, Committee on Armed Services, 
House of Representatives: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 2 p.m. EDT: 

Tuesday, March 11, 2008: 

Defense Management: 

DOD Needs to Reexamine Its Extensive Reliance on Contractors and 
Continue to Improve Management and Oversight: 

Statement of David M. Walker Comptroller General of the United States: 

GAO-08-572T: 

GAO Highlights: 

Highlights of GAO-08-572T, a testimony before the Subcommittee on 
Readiness, Committee on Armed Services, House of Representatives. 

Why GAO Did This Study: 

The federal government, including the Department of Defense (DOD), is 
increasingly relying on contractors to carry out its missions. 
Governmentwide spending on contractor services has more than doubled in 
the last 10 years. DOD has used contractors extensively to support 
troops deployed abroad. The department recently estimated the number of 
contractors in Iraq and Afghanistan to be about 196,000. DOD also 
relies heavily on contractors for various aspects of weapon system 
logistics support. 

While contractors, when properly used, can play an important role in 
helping agencies accomplish their missions, GAO has identified long-
standing problems regarding the appropriate role and management of 
contractors, particularly at DOD. This testimony highlights the 
challenges federal agencies face related to the increased reliance on 
contractors and the specific challenges DOD has had in managing its 
increased reliance on contractors who support deployed troops and who 
provide logistics support for weapons systems. 

This testimony also highlights some of the recommendations GAO has made 
over the past several years to improve DOD’s management and oversight 
of contractors, as well as DOD’s actions in response to those 
recommendations. 

What GAO Found: 

While there are benefits to using contractors to perform services for 
the government—such as increased flexibility in fulfilling immediate 
needs—GAO and others have raised concerns about the increasing reliance 
on contractors to perform agency missions. GAO’s body of work shows 
that agencies face challenges with increased reliance on contractors to 
perform core agency missions, and these challenges are accentuated in 
contingency operations such as Iraq, in emergency situations such as 
Hurricane Katrina, or in cases where sufficient government personnel 
are not available. In making the decision to use contractors, agencies 
have experienced challenges such as: determining which functions and 
activities should be contracted out and which should not to ensure 
institutional capacity; developing a total workforce strategy to 
address the extent of contractor use and the appropriate mix of 
contractor and government personnel; identifying and distinguishing the 
roles and responsibilities of contractors and civilian and military 
personnel; and ensuring appropriate oversight, including addressing 
risks, ethics concerns, and surveillance needs. 

DOD’s increased reliance on contractors to support forces deployed for 
military operations and to perform maintenance and other logistic 
support for weapon systems has highlighted challenges that DOD faces in 
managing this component of its total force. With regard to contractor 
support for deployed forces, DOD’s primary challenges have been to 
provide effective management and oversight, including failure to follow 
planning guidance, an inadequate number of contract oversight 
personnel, failure to systematically capture and distribute lessons 
learned, and a lack of comprehensive training for military commanders 
and contract oversight personnel. These challenges have led to negative 
operational and monetary impacts at deployed locations. For example, 
several military commanders GAO met with in 2006 said their pre-
deployment training did not provide them with sufficient information on 
the extent of contractor support that they would be relying on in Iraq 
and were therefore surprised by the substantial number of personnel 
they had to allocate to provide on-base escorts, convoy security, and 
other force protection support to contractors. Although DOD has taken 
some steps to address these issues, many of these issues remain a 
concern and additional actions are needed. With respect to weapon 
system support, the challenges have been to resolve questions about how 
much depot maintenance and other logistics work needs to be performed 
in-house and to what extent outsourcing for DOD logistics has been cost-
effective. While DOD has a process for defining core maintenance 
capability, GAO has identified shortcomings with this process and found 
that core maintenance capability has not always been developed. 
Finally, although increased contractor reliance for maintenance and 
other logistics activities was justified by DOD based on the assumption 
that there would be significant cost savings, it is uncertain to what 
extent cost savings have occurred or will occur. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.GAO-08-572T]. For more information, contact 
William M. Solis at (202) 512-8365 or solisw@gao.gov. 

[End of section] 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss the increased reliance on 
contractors to conduct more and more of the business of the federal 
government. In fiscal year 2007, the federal government spent about 
$254 billion on contractor services, an amount that has more than 
doubled over the past decade. The Department of Defense's (DOD) 
obligations on service contracts, expressed in constant fiscal year 
2006 dollars, rose from $85.1 billion in fiscal year 1996 to more than 
$151 billion in fiscal year 2006, a 78 percent increase. With this 
growth in spending, DOD has become increasingly reliant on contractors 
both overseas and in the United States. For example, the department has 
relied extensively on contractors for services that include 
communication services, interpreters who accompany military patrols, 
base operations support (e.g., food and housing), weapon systems 
maintenance, and intelligence analysis to support military operations 
in Southwest Asia. The U.S. military has long used contractors to 
provide supplies and services to deployed forces, but the scale of 
contractor support DOD relies on in deployed locations today has 
increased considerably. DOD has recently estimated the number of 
contractors in Iraq and Afghanistan to be about 196,000. Further, DOD 
currently has the equivalent of three brigades of contractors providing 
security services in Iraq, as well as another brigade equivalent 
supporting these contractors--a total of about 12,000 personnel. Put 
another way, there are more private security contractors in Iraq today 
than the total number of contractors (about 9,200) that were deployed 
to support military operations in the 1991 Gulf War. In addition to the 
support contractors provide for military forces deployed overseas, DOD 
has also increasingly relied on contractors for other services. For 
example, we have reported in recent years on DOD's increasing reliance 
on the private sector for various aspects of weapon system logistics 
support, including depot-level maintenance. 

While contractors, along with military personnel and civilians, are 
part of DOD's total force and fulfill many vital functions that enable 
DOD to accomplish its missions, the increased reliance on contractors 
has raised a number of issues and concerns that warrant continued 
attention. Our previous work has highlighted long-standing problems 
regarding the appropriate role and management and oversight of 
contractors in the federal workforce--particularly at DOD--and I have 
identified 15 systemic acquisition challenges facing DOD (see app. I). 
These challenges range from separating agency wants from needs to 
creating a capable workforce and holding it accountable. Since 1992, we 
have designated DOD contract management as a high-risk area, in part 
due to concerns over the adequacy of the department's acquisition 
workforce, including contract oversight personnel. Congress has 
expressed increasing concerns about DOD's management and oversight of 
contractors as well. For example, the National Defense Authorization 
Act for Fiscal Year 2008 called for the creation of a Commission on 
Wartime Contracting to make assessments of the government's reliance on 
contractors in Iraq and Afghanistan and certain contract performance 
and management issues related to those contracts. The act also created 
a contingency contractor training requirement for military personnel 
outside the acquisition workforce. Congress also has taken steps to 
improve oversight by increasing the budgets for the Defense Contract 
Audit Agency, Defense Contract Management Agency, and the Defense 
Department's Inspector General in the fiscal year 2008 DOD 
appropriations. As I have noted previously, given DOD's heavy and 
increasing reliance on contractors in Iraq and elsewhere, and the risks 
this reliance entails, it may be appropriate to ask if DOD has become 
too reliant on contractors to provide essential services.[Footnote 1] 
To help frame this issue today, I will highlight governmentwide 
challenges we have identified related to the increased reliance on 
contractors. Next, I will focus more specifically on challenges DOD has 
had in managing the increased reliance on contractors who support 
deployed troops and who provide logistics support for weapons systems. 
I will conclude with some broad observations that Congress and DOD may 
wish to consider in addressing these important issues. 

My statement today is based primarily on our prior work and the work of 
others at agencies across the federal government. Our work includes 
reviews at the Departments of Defense, Homeland Security, and Energy, 
the Environmental Protection Agency, and the National Aeronautics and 
Space Administration. The work of others includes the congressionally 
mandated Acquisition Advisory Panel and the Defense Acquisition 
University. A list of related GAO products is provided at the end of 
this statement. As part of ongoing work, we obtained updated 
information on DOD's actions to address issues we have previously 
raised. We developed this statement from February to March 2008 in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

Summary: 

While there are benefits to using contractors to perform services for 
the government--such as increased flexibility in fulfilling immediate 
needs--GAO and others have raised concerns about the increasing 
reliance on contractors to perform agency missions. Our body of work 
shows that agencies face challenges with increased reliance on 
contractors to perform core agency missions, and these challenges are 
accentuated in contingency operations such as Iraq, in emergency 
situations such Hurricane Katrina, or in cases where sufficient 
government personnel are not available. In making the decision to use 
contractors, agencies have experienced challenges such as: determining 
which functions and activities should be contracted out and which 
should not to ensure institutional capacity; developing a total 
workforce strategy to address the extent of contractor use and the 
appropriate mix of contractor and government personnel; identifying and 
distinguishing the roles and responsibilities of contractors and 
civilian and military personnel; and ensuring appropriate oversight, 
including addressing risks, ethics concerns, and surveillance needs. 

DOD's increased reliance on contractors to support forces deployed for 
military operations and to perform maintenance and other logistic 
support for weapon systems has highlighted challenges that DOD faces in 
managing this component of its total force. With regard to contractor 
support for deployed forces, DOD's primary challenges have been to 
provide effective management and oversight. These challenges include 
failure to follow planning guidance, an inadequate number of contract 
oversight personnel, failure to systematically capture and distribute 
lessons learned, and a lack of comprehensive training for military 
commanders and contract oversight personnel. These challenges have led 
to negative operational and monetary impacts at deployed locations. For 
example, several military commanders we met with in 2006 said their pre-
deployment training did not provide them with sufficient information on 
the extent of contractor support that they would be relying on in Iraq 
and were therefore surprised by the substantial number of personnel 
they had to allocate to provide on-base escorts, convoy security, and 
other force protection support to contractors. Although DOD has taken 
some steps to address these issues, many of these issues remain a 
concern and additional actions are needed. For example, in response to 
our 2003 recommendation that DOD develop comprehensive guidance to help 
the services manage contractors supporting deployed forces, the 
department issued the first comprehensive guidance dealing with 
contractors who support deployed forces in October 2005. However, as we 
recently testified, DOD's leadership needs to ensure implementation of 
and compliance with this guidance and other guidance.[Footnote 2] With 
respect to weapon system support, the challenges have been to resolve 
questions about how much depot maintenance and other logistics work 
needs to be performed in- house and to what extent outsourcing for DOD 
logistics has been cost- effective. While DOD has a process for 
defining core maintenance capability, we have identified shortcomings 
with this process and found that core maintenance capability has not 
always been developed. Further, DOD does not have a process for 
defining core capability requirements for other logistics functions and 
activities, such as supply chain management and engineering. Finally, 
although increased contractor reliance for maintenance and other 
logistics activities was justified by DOD based on the assumption that 
there would be significant cost savings, it is uncertain to what extent 
cost savings have occurred or will occur. 

Background: 

Acquisition of products and services from contractors consumes about a 
quarter of discretionary spending governmentwide, with services making 
up roughly 60 percent. These services range from basic functions, such 
as landscaping and janitorial, to those that are more complex, like 
intelligence analysis, acquisition support, security services, and 
program office support. The acquisition of services differs from that 
of products in several key respects and can be particularly challenging 
in terms of defining requirements and assessing contractor performance. 
DOD is by far the largest federal purchaser of service contracts-- 
ranging from housing to intelligence to security. 

Contractors can play an important part in helping agencies accomplish 
their missions. For example, agencies use service contracts to acquire 
special knowledge and skills not available in the government, obtain 
cost-effective services, or obtain temporary or intermittent services. 
The congressionally mandated Acquisition Advisory Panel[Footnote 3] has 
cited a number of developments that have led federal agencies to 
increase the use of contractors as service providers: limitations on 
the number of authorized full-time equivalent positions; unavailability 
of certain capabilities and expertise among federal employees; desire 
for operational flexibility; and the need for "surge" capacity. 
According to DOD and service officials, several factors have 
contributed to the department's increased use of contractors for 
support services: (1) the increased requirements associated with the 
Global War on Terrorism and other contingencies; (2) policy to rely on 
the private sector for needed commercial services that are not 
inherently governmental in nature; and (3) DOD initiatives, such as 
competitive sourcing and utility privatization programs. 

The Office of Management and Budget (OMB), procurement law, and the 
Federal Acquisition Regulation (FAR) provide guidance on contracting 
for services. OMB Circular A-76 details a process for federal agencies 
to obtain commercially available services currently performed by 
government employees from the private sector when it is cost-effective 
to do so.[Footnote 4] The Circular reinforces that government personnel 
shall perform inherently governmental activities. This process does not 
apply to private sector performance of a new requirement, expanded 
activity, or continued performance of a commercial activity. As such, 
this process effectively applies to a small percentage of the 
government's contracting activity. Most of the growth in service 
contracting has occurred outside of the A-76 process. The Federal 
Activities Inventory Reform (FAIR) Act of 1998 further requires 
agencies annually to determine and list which government-provided 
agency activities are not inherently governmental functions.[Footnote 
5] Federal procurement regulation states that functions that are so 
intimately related to the public interest are considered inherently 
governmental and should only be performed by government personnel. 
These functions include those activities which require either the 
exercise of discretion in applying government authority or the use of 
value judgment in making decisions for the government, and should not 
be performed by contractors.[Footnote 6] The FAR and OMB also require 
agencies to provide greater scrutiny and management oversight when 
contracting for services that closely support the performance of 
inherently governmental functions.[Footnote 7] The closer contractor 
services come to supporting inherently governmental functions, the 
greater the risk of their influencing the government's control over and 
accountability for decisions that may be based, in part, on contractor 
work. This may result in decisions that are not in the best interest of 
the government, and may increase vulnerability to waste, fraud, and 
abuse. 

Before I go into more detail on the issues surrounding the federal 
government's and DOD's reliance on contractors, I would like to touch 
on another subject of interest to the Subcommittee--DOD's application 
of enhanced use leases. DOD's longstanding leasing authority is 
codified at 10 U.S.C. 2667. The law provides general authority for the 
Secretary of a military department to enter into a lease upon such 
terms he considers will promote the national defense or be in the 
public interest. The Secretary of a military department is authorized 
to lease real property up to five years unless the Secretary determines 
that a lease for a longer period will promote the nation defense or be 
in the public interest. Over time, Congress has expanded DOD's leasing 
authority several times to provide a lessee the first right to buy the 
property and provide for payment in cash or in kind by the lessee of 
consideration in an amount not less than the fair market value. Most 
recently, the National Defense Authorization Act for Fiscal Year 2008 
amended 10 U.S.C. 2667 in several ways; for example, the authority to 
accept facilities operation support as in-kind consideration was 
eliminated, and a requirement that leases meeting certain criteria be 
competitively awarded was added.[Footnote 8] The services have leased 
real property on their bases for years as a means to reduce 
infrastructure and base operating costs. For example, the military 
services have leased space for banks, credit unions, ATMs, storage, 
schools, and agricultural grazing. As you know, Mr. Chairman, we are 
conducting a review of DOD's land use planning activities, and will 
have more to say on this issue later. 

Federal Agencies Have Faced Challenges with Increased Reliance on 
Contractors to Perform Agency Missions: 

While there are benefits to using contractors to perform services for 
the government--such as increased flexibility in fulfilling immediate 
needs--GAO and others have raised concerns about the increasing 
reliance on contractors to perform agency missions. Our work shows that 
agencies face challenges with increased reliance on contractors to 
perform core agency missions, especially in contingency or emergency 
situations or in cases where sufficient government personnel are not 
available. As I have previously stated, prior to making the decisions 
to use contractors, agency officials should focus greater attention on 
which functions and activities should be contracted out and which 
should not. To guide this approach, agencies need to consider 
developing a total workforce strategy to meet current and future human 
capital needs, and address the extent of contractor use and the 
appropriate mix of contractor and civilian and military personnel. I 
have also noted that identifying and distinguishing the 
responsibilities of contractors and civilian and military personnel are 
critical to ensure contractor roles are appropriate. Finally, once 
contractors are in place, agencies must ensure appropriate oversight of 
contractors, including addressing risks, ethics concerns, and 
surveillance needs. 

Institutional Capacity: Agencies Face Challenges in Determining What 
Functions and Activities Can be Contracted Out and What Should be 
Provided by Government Personnel: 

In order to determine what functions and activities can be contracted 
out, the FAIR Act requires agencies annually to identify government- 
performed agency activities that are not inherently governmental 
functions. At GAO's 2006 forum on federal acquisition challenges and 
opportunities, some participants noted that it might be more 
appropriate for agencies to develop guiding principles or values to 
determine which positions could be contracted out and which should be 
performed in-house. Forum participants further noted that many 
corporate organizations carefully deliberate up-front and at the 
highest management levels about what core functions they need to retain 
and what non-core functions they should buy, and the skill sets needed 
to procure non-core functions.[Footnote 9] 

DOD's Panel on Contracting Integrity, in its 2007 report to Congress, 
noted that the practice of using contractors to support the government 
acquisition function merits further study because it gives rise to 
questions regarding the appropriate designation of government versus 
nongovernment functions.[Footnote 10] A November 2005 report by the 
Defense Acquisition University warned that the government must be 
careful when contracting for the acquisition support function to ensure 
that the government retains thorough control of policy and management 
decisions and that contracting for the acquisition support function 
does not inappropriately restrict agency management in its ability to 
develop and consider options.[Footnote 11] Additionally, our prior work 
has found that when federal agencies, including DOD, believe they do 
not have the in-house capability to design, develop, and manage complex 
acquisitions, they sometimes turn to a systems integrator to carry out 
these functions, creating an inherent risk of relying too much on 
contractors to make program decisions. For example, the Army's Future 
Combat System program is managed by a lead systems integrator that 
assumes the responsibilities of developing requirements; selecting 
major system and subsystem contractors; and making trade-off decisions 
among costs, schedules, and capabilities. While this management 
approach has some advantages for DOD, we found that the extent of 
contractor responsibility makes DOD vulnerable to decisions being made 
by the contractor that are not in the government's best 
interests.[Footnote 12] 

In September 2007, we reported that an increasing reliance on 
contractors to perform services for core government activities 
challenges the capacity of federal officials to supervise and evaluate 
the performance of these activities. I recently noted that this may be 
a concern in the intelligence community.[Footnote 13] Specifically, 
while direction and control of intelligence and counter-intelligence 
operations are listed as inherently governmental functions, the 
Director of National Intelligence reported in 2006 that the 
intelligence community finds itself in competition with its contractors 
for employees and is left with no choice but to use contractors for 
work that may be "borderline inherently governmental."[Footnote 14] We 
have also found problems with contractors having too much control at 
other federal agencies.[Footnote 15] Unless the federal government pays 
the needed attention to the types of functions and activities performed 
by contractors, agencies run the risk of losing accountability and 
control over mission-related decisions. 

Workforce Planning: Agencies Face Challenges in Developing an 
Appropriate Mix of Contractor and Government Personnel to Meet Current 
and Future Needs: 

Along with determining the functions and activities to be contracted 
out, agencies face challenges in developing a total workforce strategy 
to address the extent of contractor use and the appropriate mix of 
contractor and civilian and military personnel. We have found that 
agencies need appropriate workforce planning strategies that include 
contractor as well as federal personnel and are linked to current and 
future human capital needs. These strategies should be linked to the 
knowledge, skills, and abilities needed by agencies and how the 
workforce will be deployed across the organization. Deployment includes 
the flexible use of the workforce, such as putting the right employees 
in the right roles according to their skills, and relying on staff 
drawn from various organizational components and functions using "just- 
in-time" or "virtual" teams to focus the right talent on specific 
tasks.[Footnote 16] 

As agencies develop their workforce strategies, they also need to 
consider the extent to which contractors should be used and the 
appropriate mix of contractor and federal personnel. Over the past 
several years, there has been increasing concern about the ability of 
agencies to ensure sufficient numbers of staff to perform some 
inherently governmental functions. The Department of Homeland 
Security's human capital strategic plan notes the department has 
identified core mission-critical occupations and plans to reduce skill 
gaps in core and key competencies. However, it is unclear how this will 
be achieved and whether it will inform the department's use of 
contractors for services that closely support inherently governmental 
functions. The Department of Homeland Security has agreed with the need 
to establish strategic-level guidance for determining the appropriate 
mix of government and contractor employees to meet mission 
needs.[Footnote 17] 

Roles and Responsibilities: Agencies Face Challenges in Defining the 
Relationship between Contractors and Government Employees: 

Agencies are challenged to define the roles and responsibilities of 
contractors vis-à-vis government employees. Defining the relationship 
between contractors and government employees is particularly important 
when contracting for professional and management support services since 
contractors often work closely with government employees to provide 
these services. This definition begins during the acquisition planning 
process when contract requirements are determined. We have recommended 
that agencies define contract requirements to clearly describe roles, 
responsibilities, and limitations of selected contractor services. Well-
defined contract requirements can also help minimize the risk of 
contractors performing inherently governmental functions. Yet 
contracts, especially service contracts, often do not have definitive 
or realistic requirements at the outset. Because the nature of 
contracted services can vary widely, from building maintenance to 
intelligence, a tailored approach should be used in defining 
requirements to help ensure that risks associated with a requirement 
are fully considered before entering into a contract 
arrangement.[Footnote 18] In our recent review of the Department of 
Homeland Security's service contracts, we found that some contracts 
included requirements that were broadly defined and lacked detail about 
activities that closely support inherently governmental functions. We 
found instances in which contractors provided services that were 
integral to the department's mission or comparable to work performed by 
government employees, such as a contractor directly supporting the 
department's efforts to hire federal employees, including signing offer 
letters.[Footnote 19] 

Our work on contractors in acquisition support functions has found that 
it is now commonplace for agencies to use contractors to perform 
activities historically performed by federal government contract 
specialists. Although these contractors are not authorized to obligate 
government funds, they provide acquisition support to contracting 
officers, the federal decision makers who have the authority to bind 
the government contractually. Contract specialists perform tasks that 
closely support inherently governmental functions, such as assisting in 
preparing statements of work; developing and managing acquisition 
plans; and preparing the documents the contracting officer signs, such 
as contracts, solicitations, and contract modifications. Therefore, it 
is important to clearly define the roles contractors play in supporting 
government personnel to ensure they do not perform inherently 
governmental functions. 

Management and Oversight: Agencies Face Challenges in Assessing Risks, 
Minimizing Potential Ethics Concerns, and Ensuring Quality 
Surveillance: 

Our work has also identified a number of practices that are important 
to effectively managing and overseeing contractors once contractors are 
in place. These include assessing risks, minimizing potential ethics 
concerns, and ensuring quality through adequate surveillance. However, 
agencies face challenges in all these areas. 

Risk is innate when contractors closely support inherently governmental 
functions. Federal procurement policy requires enhanced oversight of 
services that closely support the performance of inherently 
governmental functions to ensure that government decisions reflect the 
independent judgment of agency officials and that agency officials 
retain control over and remain accountable for policy decisions that 
may be based on contractor work products. However, our work has shown 
that agency officials do not always assess these risks to government 
decision making. For example, in 2007 we reported that while Department 
of Homeland Security program officials generally acknowledged that 
their professional and management support services contracts closely 
supported the performance of inherently governmental functions, they 
did not assess the risk that government decisions may be influenced by 
rather than independent from contractor judgments. Further, most of the 
program officials and contracting officers we spoke with were not aware 
of the requirement to provide enhanced oversight, and did not believe 
that their professional and management support services needed enhanced 
oversight. 

Contractors are generally not subject to the same ethics rules as 
government employees even when they are co-located and work side-by- 
side with federal employees and perform similar functions. Federal 
ethics rules and standards have been put in place to help safeguard the 
integrity of the procurement process by mitigating the risk that 
employees entrusted to act in the best interest of the government will 
use their positions to influence the outcomes of contract awards for 
future gain. In addition, as we reported in 2005, contractors we met 
with indicated that DOD did not monitor their recruiting, hiring, and 
placement practices for current and former government employees. 
Consequently, DOD could not be assured that potential conflicts of 
interest would be identified. A lack of awareness among government 
employees of procurement integrity rules and conflict-of interest 
considerations creates additional risk. For example, in 2005 we 
reported that DOD did not know the content or frequency of ethics 
training and counseling or which employees received information on 
conflict-of-interest and procurement integrity. DOD also lacked 
knowledge on reported allegations of potential misconduct.[Footnote 20] 
In 2007, the Acquisition Advisory Panel recommended training for 
contractors and government employees, and the development of standard 
conflicts of interest clauses to include in solicitations and 
contracts. 

Quality assurance, especially regular surveillance and documentation of 
its results, is essential to determine whether goods or services 
provided by the contractor satisfy the contract requirements and to 
minimize risks that the government will pay the contractor more than 
the value of the goods and services. However, DOD officials have 
expressed concerns about the current state of the acquisition workforce 
to support surveillance and mentioned that surveillance remains an 
"other duty as assigned" and, consequently, is a low-priority task. We 
have also reported wide discrepancies in the rigor with which officials 
responsible for surveillance perform their duties, particularly in 
unstable environments. For example, in the aftermath of Hurricanes 
Katrina and Rita, the number of government personnel monitoring 
contracts was not always sufficient or adequately deployed to provide 
effective oversight.[Footnote 21] Unfortunately, attention to oversight 
has not always been evident in a number of instances, including during 
the Iraq reconstruction effort. We have reported that, particularly in 
the early phases of the Iraq reconstruction effort, several agencies 
including the Army lacked an adequate acquisition workforce in Iraq to 
oversee billions of dollars for which they were responsible. Further, 
Army personnel who were responsible for overseeing contractor 
performance of interrogation and other services were not adequately 
trained to properly exercise their responsibilities. Contractor 
employees were stationed in various locations around Iraq, with no 
assigned representative on site to monitor their work. An Army 
investigative report concluded that the number and training of 
officials assigned to monitor contractor performance at Abu Ghraib 
prison was not sufficient and put the Army at risk of being unaware of 
possible misconduct by contractor personnel.[Footnote 22] 

DOD Faces Challenges in Managing the Increased Role of Contractors 
Performing Support Functions for Military Operations and Weapons 
Systems: 

DOD's increasing use of contractors to perform mission-support 
functions, including contractors who support forces deployed for 
military operations and contractors who perform maintenance and other 
logistic support for weapon systems, has highlighted several challenges 
that DOD faces in managing the increased role of this component of its 
total force. With regard to contractor support to deployed forces, 
DOD's primary challenges have been to provide effective management and 
oversight. With respect to weapon system support, the challenges have 
been to resolve questions about how much depot maintenance and other 
logistic work needs to be performed in-house and about to what extent 
outsourcing for DOD logistics has been cost-effective. 

DOD has Experienced Long-Standing Problems with its Management and 
Oversight of Contractors Supporting Deployed Forces, But Has Taken Some 
Actions to Address these Problems: 

Since 1997, we have reported on DOD's management and oversight 
challenges related to its use of contractor support to deployed forces. 
In December 2006, we issued a comprehensive review of DOD's management 
and oversight of contractor support to deployed forces.[Footnote 23] We 
reported that despite making progress in some areas, DOD continued to 
face long-standing problems that hindered its management and oversight 
of contractors at deployed locations. Those problems included issues 
regarding visibility of contractors, numbers of contract oversight 
personnel, lessons learned, and training of military commanders and 
contract oversight personnel. More recently, we testified that DOD's 
leadership needs to ensure implementation of and compliance with 
guidance on the use of contractors to support deployed forces. 

While DOD has long relied on contractors to support forces deployed for 
military operations, the large influx of contractors in support of 
operations in Iraq has exacerbated problems that DOD has had in 
managing and overseeing their activities. Significantly, the individual 
services and a wide array of DOD and non-DOD agencies can award 
contracts to support deployed forces. For example, although DOD 
estimated that as of the first quarter of fiscal year 2008, 163,590 
contractors were supporting deployed forces in Iraq, no one person or 
organization made a decision to send 163,590 contractors to Iraq. 
Rather, decisions to send contractors to support forces in Iraq were 
made by numerous DOD activities both within and outside of Iraq. This 
decentralized process, combined with the scope and scale of contract 
support to deployed forces, contributes to the complexity of the 
problems we have identified in our past work on this topic. 

DOD has taken a number of actions to implement recommendations that we 
have made to improve its management of contractors. For example, in 
response to our 2003 recommendation that DOD develop comprehensive 
guidance to help the services manage contractors supporting deployed 
forces, the department issued the first comprehensive guidance dealing 
with contractors who support deployed forces in October 2005. 
Additionally, in October 2006, DOD established the office of the 
Assistant Deputy Under Secretary of Defense for Program Support to 
serve as the office with primary responsibility for contractor support 
issues. This office has led the effort to develop and implement a 
database which, when fully implemented, will allow by-name 
accountability of contractors who deploy with the force. This database 
implements recommendations we made in 2003 and 2006 to enhance the 
department's visibility over contractors in locations such as Iraq and 
Afghanistan. Although DOD has taken these and other steps to address 
these issues, we recently testified that many of these issues remain a 
concern and additional actions are needed.[Footnote 24] 

DOD Has Not Followed Long-Standing Planning Guidance Regarding the Use 
of Contractors to Support Deployed Forces: 

As we have noted in previous reports and testimonies, DOD has not 
followed long-standing planning guidance, particularly by not 
adequately factoring the use and role of contractors into its planning. 
For example, we noted in 2003 that the operations plan for the war in 
Iraq contained only limited information on contractor support.[Footnote 
25] However, Joint Publication 4-0,[Footnote 26] which provides 
doctrine and guidance for combatant commanders and their components 
regarding the planning and execution of logistic support of joint 
operations, stresses the importance of fully integrating into logistics 
plans and orders the logistics functions performed by contractors along 
with those performed by military personnel and government civilians. 

Additionally, we reported in 2004 that the Army did not follow its 
planning guidance when deciding to use the Army's Logistics Civil 
Augmentation Program (LOGCAP) in Iraq.[Footnote 27] This guidance 
stresses the need to clearly identify requirements and develop a 
comprehensive statement of work early in the contingency planning 
process. Because this Army guidance was not followed, the plan to 
support the troops in Iraq was not comprehensive and was revised seven 
times in less than 1 year. 

Our 2003 report also concluded that essential contractor services had 
not been identified and backup planning was not being done.[Footnote 
28] DOD policy requires DOD and its components to determine which 
contractor-provided services will be essential during crisis 
situations, develop and implement plans and procedures to provide a 
reasonable assurance of the continuation of essential services during 
crisis situations, and prepare a contingency plan for obtaining the 
essential service from an alternate source should the contractor be 
unable to provide it. Without such plans, there is no assurance that 
the personnel needed to provide the essential services would be 
available when needed. 

Moreover, as we reported in 2003 and 2006,[Footnote 29] senior leaders 
and military commanders need information about the contractor services 
they are relying on in order to incorporate contractor support into 
their planning. For example, senior military commanders in Iraq told us 
that when they began to develop a base consolidation plan for Iraq, 
they had no source to draw upon to determine how many contractors were 
on each installation. Limited visibility can also hinder the ability of 
commanders to make informed decisions about base operations support 
(e.g., food and housing) and force protection for all personnel on an 
installation. 

DOD has taken some action to address this problem. DOD is developing a 
database of contractors who deploy with U.S. forces. According to 
senior DOD officials familiar with this database, as of February 2008, 
the database had about 80,000 records. DOD is working with the State 
Department to include additional contractors, including private 
security contractors, in the database. In addition, Joint Contracting 
Command Iraq/Afghanistan has created the Theater Business Clearance 
process that reviews and approves all contracts for work in Iraq or 
Afghanistan. Joint Contracting Command Iraq/Afghanistan officials 
stated that this has helped military commanders know ahead of time when 
contractors are coming to work on their bases and ensure sufficient 
facilities are available for them. According to senior DOD officials, 
the department is also developing a cadre of contracting planners to 
ensure that contractor support is included in combatant commanders' 
operational and contingency planning. 

DOD Lacks an Adequate Number of Trained Contract Oversight Personnel: 

As we noted in several of our previous reports, having the right people 
with the right skills to oversee contractor performance is crucial to 
ensuring that DOD receives the best value for the billions of dollars 
spent each year on contractor-provided services supporting forces 
deployed to Iraq and elsewhere. However, since 1992, we have designated 
DOD contract management as a high-risk area, in part due to concerns 
over the adequacy of the department's acquisition workforce, including 
contract oversight personnel. While this is a DOD-wide problem, having 
too few contract oversight personnel presents unique difficulties at 
deployed locations given the more demanding contracting environment as 
compared to the United States. 

Having an inadequate number of contract oversight personnel has 
hindered DOD's ability to effectively manage and oversee contractors 
supporting deployed forces and has had monetary impacts as well. For 
example, in 2004 we reported that DOD did not always have enough 
contract oversight personnel in place to manage and oversee its 
logistics support contracts such as LOGCAP and the Air Force Contract 
Augmentation Program (AFCAP).[Footnote 30] As a result, the Defense 
Contract Management Agency was unable to account for $2 million worth 
of tools that had been purchased using the AFCAP contract. During our 
2006 review, several contract oversight personnel we met with told us 
DOD does not have adequate personnel at deployed locations.[Footnote 
31] For example, a contracting officer's representative for a 
linguistic support contract told us that although he had a battalion's 
worth of people with a battalion's worth of problems, he lacked the 
equivalent of a battalion's staff to deal with those problems. 
Similarly, an official with the LOGCAP Program Office told us that, had 
adequate staffing been in place early, the Army could have realized 
substantial savings through more effective reviews of the increasing 
volume of LOGCAP requirements. 

More recently, we reported that the Army did not have adequate staff to 
oversee an equipment maintenance contract in Kuwait.[Footnote 32] 
According to Army officials, vacant and reduced inspector and analyst 
positions meant that surveillance was not being performed sufficiently 
in some areas and the Army was less able to perform data analyses, 
identify trends in contractor performance, and improve quality 
processes. In addition, the 2007 report of the Commission on Army 
Acquisition and Program Management in Expeditionary Operations stated 
that the Army lacks the leadership and military and civilian personnel 
to provide sufficient contracting support to either expeditionary or 
peacetime missions.[Footnote 33] As a result, the commission found that 
the vital task of post-award contract management is rarely being done. 
As we noted in our 2006 report,[Footnote 34] without adequate contract 
oversight personnel in place to monitor its many contracts in deployed 
locations such as Iraq, DOD may not be able to obtain reasonable 
assurance that contractors are meeting their contract requirements 
efficiently and effectively. 

DOD has taken some actions to address this problem. In February 2007, 
the Deputy Assistant Secretary of the Army (Policy and Procurement) 
issued guidance that required, among other things, contracting officers 
to appoint certified contracting officer's representatives in writing 
before contract performance begins, identify properly trained 
contracting officer's representatives for active service contracts, and 
ensure that a government quality assurance surveillance plan is 
prepared and implemented for service contracts exceeding $2,500. Joint 
Contracting Command Iraq/Afghanistan officials stated they are in the 
process of adding 39 personnel to provide additional contractor 
oversight. Similarly, the Defense Contract Management Agency has 
deployed an additional 100 people and plans to deploy approximately 150 
more people to provide contract oversight and management to both 
ongoing and future contracts in Iraq. The agency is providing oversight 
for DOD's private security contracts as well as other theaterwide 
contracts. Additionally, senior DOD officials stated that the 
department has created a task force to address the recommendations of 
the October 2007 report by the Commission on Army Acquisition and 
Program Management in Expeditionary Operations. 

DOD Is Not Systematically Collecting and Distributing Lessons Learned: 

Although DOD and its components have used contractors to support 
deployed forces in several prior military operations, DOD does not 
systematically ensure that institutional knowledge on the use of 
contractors to support deployed forces, including lessons learned and 
best practices, is shared with military personnel at deployed 
locations. We previously reported that DOD could benefit from 
systematically collecting and sharing its institutional knowledge to 
help ensure that it is factored into planning, work processes, and 
other activities.[Footnote 35] Although DOD has policy requiring the 
collection and distribution of lessons learned to the maximum extent 
possible, we found in our previous work that no procedures were in 
place to ensure that lessons learned are collected and shared. 

Moreover, although the Army regulation which establishes policies, 
responsibilities, and procedures for the implementation of the LOGCAP 
program makes customers that receive services under the LOGCAP contract 
responsible for collecting lessons learned, we have repeatedly found 
that DOD is not systematically collecting and sharing lessons learned 
on the use of contractors to support to deployed forces. Despite years 
of experience using contractors to support forces deployed to the 
Balkans, Southwest Asia, Iraq, and Afghanistan, DOD has made few 
efforts to leverage this institutional knowledge. As a result, many of 
the problems we identified in earlier operations have recurred in 
current operations. 

During the course of our 2006 work, we found no organization within DOD 
or its components responsible for developing procedures to capture 
lessons learned on the use of contractor support at deployed 
locations.[Footnote 36] We noted that when lessons learned are not 
collected and shared, DOD and its components run the risk of repeating 
past mistakes and being unable to build on the efficiencies and 
effectiveness others have developed during past operations that 
involved contractor support. We also found a failure to share best 
practices and lessons learned between units as one redeploys and the 
other deploys to replace it. As a result, new units essentially start 
at ground zero, having to resolve a number of difficulties until they 
understand contractor roles and responsibilities. 

DOD Does Not Comprehensively Train Military Commanders and Contract 
Oversight Personnel: 

DOD does not routinely incorporate information about contractor support 
for deployed forces in its pre-deployment training of military 
personnel, despite the long-standing recognition of the need to provide 
such information. We have discussed the need for better pre-deployment 
training of military commanders and contract oversight personnel since 
the mid-1990s and have made several recommendations aimed at improving 
such training. Moreover, according to DOD policy, personnel should 
receive timely and effective training to ensure they have the knowledge 
and other tools necessary to accomplish their missions. Nevertheless, 
we continue to find little evidence that improvements have been made in 
terms of how DOD and its components train military commanders and 
contract oversight personnel on the use of contractors to support 
deployed forces prior to their deployment. Without properly trained 
personnel, DOD will continue to face risks of fraud, waste, and abuse. 

Limited or no pre-deployment training on the use of contractor support 
can cause a variety of problems for military commanders in a deployed 
location. As we reported in 2006, with limited or no pre-deployment 
training on the extent of contractor support to deployed forces, 
military commanders may not be able to adequately plan for the use of 
those contractors.[Footnote 37] Similarly, in its 2007 report, the 
Commission on Army Acquisition and Program Management in Expeditionary 
Operations concluded that the Army needs to educate and train 
commanders on the important operational role of contracting. Several 
military commanders we met with in 2006 said their pre-deployment 
training did not provide them with sufficient information on the extent 
of contractor support that they would be relying on in Iraq and were 
therefore surprised by the substantial number of personnel they had to 
allocate to provide on-base escorts, convoy security, and other force 
protection support to contractors. In addition, limited or no pre- 
deployment training for military commanders can result in confusion 
over their roles and responsibilities in managing and overseeing 
contractors. For example, we found some instances where a lack of 
training raised concerns over the potential for military commanders to 
direct contractors to perform work outside the scope of the contract, 
something commanders lack the authority to do. This can cause the 
government to incur additional charges because modifications would need 
to be made to the contract. 

We also found that contract oversight personnel such as contracting 
officer's representatives received little or no pre-deployment training 
on their roles and responsibilities in monitoring contractor 
performance. Many of the contracting officer's representatives we spoke 
with in 2003 and 2006 said that training before they assumed these 
positions would have better prepared them to effectively oversee 
contractor performance. In most cases, deploying individuals were not 
informed that they would be performing contracting officer's 
representative duties until after they had deployed, which hindered the 
ability of those individuals to effectively manage and oversee 
contractors. For example, officials from a corps support group in Iraq 
told us that until they were able to get a properly trained contracting 
officer's representative in place, they experienced numerous problems 
regarding the quality of food service provided by LOGCAP. In addition, 
the 2007 report of the Commission on Army Acquisition and Program 
Management in Expeditionary Operations discussed the need to train 
contracting officer's representatives and warned that the lack of 
training could lead to fraud, waste, and abuse. 

DOD has taken some steps to address this problem. In DOD's response to 
our 2006 report, the Director of Defense Procurement and Acquisition 
Policy stated that the Army is making changes to its logistics training 
programs that would incorporate contracting officer's representatives 
training into its basic and advanced training for its ordnance, 
transportation, and quartermaster corps.[Footnote 38] In addition, the 
Defense Acquisition University has updated its contingency contracting 
course to include a lesson on contractors accompanying the force. 
Further, the Defense Contract Management Agency is adding personnel to 
assist in the training and managing of contracting officer's 
representatives. 

Increased Reliance on Contractors for Weapon System Support Raises 
Questions about Core Functions and Cost Effectiveness: 

DOD has moved over the years toward greater use of the private sector 
to perform maintenance and other logistics support for weapon systems. 
Factors influencing this increased reliance on contractors include 
changes in DOD's guidance and plans that emphasized the privatization 
of logistics functions, a lack of technical data and modernized 
facilities needed to perform maintenance on new systems, and reductions 
in maintenance workers at government-owned depots. The move toward 
greater reliance on contractors has raised questions regarding how much 
depot maintenance and other logistics work needs to be performed in- 
house and about the cost-effectiveness of outsourcing DOD logistics. 

DOD Has Increasingly Relied on Contractors for Maintenance and Other 
Logistic Support of Weapon Systems: 

DOD has increasingly relied on contractors for maintenance and other 
logistic support of weapon systems. For example, funding for private 
sector contractors to perform depot maintenance[Footnote 39] increased 
in then-year dollars from about $4.0 billion in fiscal year 1987 to 
about $13.8 billion in fiscal year 2007, or 246 percent. In contrast, 
during this same time period, the amount of funding for depot 
maintenance performed at government (public) depots increased from 
about $8.7 billion to about $16.1 billion, or 85 percent. This trend 
toward greater reliance on the private sector for depot maintenance was 
most evident during the period from fiscal years 1987 to 2000, when the 
amount of funding for public depot maintenance largely stayed flat and 
private sector funding increased by 89 percent. Since 2001, military 
operations in support of the Global War on Terrorism have resulted in 
large funding increases for maintenance performed by both public and 
private sector activities. 

One potential future limitation to continued contracting out of depot 
maintenance activities is the statutory limit on the amount of funding 
for depot maintenance work that can be performed by private sector 
contractors. Under 10 U.S.C. 2466(a), not more than 50 percent of funds 
made available in a fiscal year to a military department or defense 
agency for depot-level maintenance and repair may be used to contract 
for the performance by non-government personnel of such workload for 
the military departments and defense agencies. As the contractors' 
share has increased over time, managing within this limitation has 
become more challenging--particularly for the Air Force and, to a 
lesser extent, the Army. Another potential limitation to contracting 
out is a requirement that DOD maintain a core logistics capability 
within government facilities.[Footnote 40] However, as I will discuss, 
our work has revealed problems in DOD's implementation of this 
requirement. 

DOD also has experienced significant growth in the overall use of 
contractors for long-term logistics support of weapon systems.[Footnote 
41] While the department does not collect and aggregate cost data 
specifically on these support arrangements, available data illustrate 
this growth. For example, Air Force data show an increase in funding 
for these support arrangements from $910 million in fiscal year 1996 to 
a projected $4.1 billion in fiscal year 2013. Many DOD acquisition 
program offices have been adopting long-term support strategies for 
sustaining new and modified systems that rely on contractors. Our 
ongoing review of core logistics capability indicates that performance- 
based logistics or some other type of partnership is a frequently used 
weapon system sustainment approach. 

Multiple Factors Have Influenced DOD's Increased Reliance on 
Contracting: 

The move toward increased use of contractors to perform maintenance and 
other logistics support for weapon systems has been influenced by 
multiple factors. A significant factor has been the shift in DOD's 
guidance and plans that placed greater emphasis on privatizing 
logistics functions. In 1996, for example, DOD issued a report, Plan 
for Increasing Depot Maintenance Privatization and Outsourcing, which 
provided a framework for substantially increasing reliance on the 
private sector for depot maintenance. In addition, both the 1995 report 
by the Commission on Roles and Missions[Footnote 42] and a 1996 report 
by a Defense Science Board[Footnote 43] task force recommended that DOD 
outsource almost all depot maintenance and other logistics activities. 
Both study teams assumed large cost savings would result from increased 
privatization. Today, DOD guidance provides that performance-based 
logistics is now DOD's preferred approach for providing long-term total 
system support for weapon systems. DOD describes performance-based 
logistics as the process of (1) identifying a level of performance 
required by the warfighter and (2) negotiating a performance-based 
arrangement to provide long-term total system support for a weapon 
system at a fixed level of annual funding. 

Another factor in the move toward greater reliance on contractors has 
been the lack of technical data and other elements of support, such as 
modernized facilities, required to establish a maintenance capability 
for new systems. Technical data for weapon systems include drawings, 
specifications, standards, and other details necessary to ensure the 
adequacy of item performance, as well as manuals that contain 
instructions for installation, operation, maintenance, and other 
actions needed to support weapon systems. As a result of not having 
acquired technical data rights from the equipment manufacturers, the 
military services in some instances have had difficulty establishing a 
maintenance capability at government depots. For example, the Air Force 
identified a need to develop a core capability to perform maintenance 
on the C-17 aircraft at government depots, but lacked the requisite 
technical data rights. Consequently, the Air Force has sought to form 
partnerships with C-17 subvendors to develop a depot maintenance 
capability, but these efforts have had mixed results. Based on our 
ongoing review of DOD core capability, we found that the Air Force 
continues to have challenges establishing core capability for C-17 
commodities because of technical data issues. 

A third factor influencing DOD's increasing reliance on contractor 
support has been reductions in government depot maintenance personnel 
available to perform the work. Personnel downsizing has greatly reduced 
the number of depot maintenance workers and has limited the amount of 
work that could be performed in the depots. Since 1987 the number of 
depot-level maintenance personnel was reduced by 56 percent from a high 
of 163,000 in 1987 to about 72,000 in 2002, after which the depots 
began to see some personnel increases to support the Global War on 
Terrorism. In comparison, in the 13 years between 1989 and 2002, DOD's 
total civilian workforce had a 38 percent reduction. While some 
downsizing was essential, given reductions in depot maintenance 
workloads over the same period, mandated reductions in the number of 
personnel were taken even though the depots may have had funded 
workload to support an increased number of personnel. For example, in a 
review of Army depot personnel reductions in 1998, we found that 
efforts to implement the reductions at the Corpus Christi Army Depot 
were poorly managed and more direct labor employees were reduced than 
intended--adversely affecting the depot's productivity. We found that 
while Army regulations on manpower management provide that staffing 
levels are to be based on the workloads performed, the Army's reduced 
staffing plan was developed in response to affordability concerns and a 
desire to lower the depot's rates and did not support the depot's 
funded workload requirement.[Footnote 44] 

Uncertainties Exist About Maintaining Core Capability for Depot 
Maintenance and Other Logistics Work: 

Because DOD has not clearly and comprehensively identified what depot 
maintenance and other logistics activities the department should be 
performing itself, it is unclear how much of the work that has been 
contracted out may be work that should be done in-house by government 
personnel. Additionally, DOD has not identified core logistics 
capability requirements for other logistics functions, such as supply 
chain management and engineering. 

With regard to depot maintenance, we previously reported that DOD lacks 
assurance that core logistics capabilities were being maintained as 
needed to ensure timely and effective response to national defense 
emergencies and contingencies, as required by 10 U.S.C. 2464, noting 
that several factors precluded this assurance.[Footnote 45] First, 
DOD's existing policy, which establishes a process for identifying core 
maintenance capability, was not comprehensive in that it did not 
provide for a forward look at new weapon systems and associated future 
maintenance capability requirements. Second, the various procedures and 
practices being used by the services to implement the existing policy 
were also affecting the establishment of core capability. For example, 
the Air Force reduced its core requirement as a result of its 
consideration of maintenance work performed in the private sector, even 
though core work is supposed to be performed in military facilities and 
by government personnel. In addition, we have noted that DOD has had 
other limitations, including a lack of technical data rights and a lack 
of sufficient investment in facilities, equipment, and human capital to 
ensure the long-term viability of the military depots. 

To improve its process for identifying core maintenance capability 
requirements, in January 2007 DOD issued an instruction on how to 
identify required core capabilities for depot maintenance, which 
generally mirrored previous guidance.[Footnote 46] Also, in March 2007 
DOD issued its depot maintenance strategy, which delineated the actions 
DOD is undertaking to identify and sustain core maintenance capability. 
We have an ongoing engagement to assess the effectiveness of the 
current policy and procedures as well as the services' implementation. 

To address issues inhibiting the establishment of core capability, 
Congress has taken recent actions to address problems with technical 
data and depot facilities. We previously recommended that DOD improve 
its acquisition policies for assessing technical data needs to support 
weapon systems.[Footnote 47] The John Warner National Defense 
Authorization Act for Fiscal Year 2007 (2007 Defense Authorization Act) 
mandated that DOD require program managers for major weapon systems to 
assess long-term technical data needs for weapon systems and to 
establish corresponding acquisition strategies that provide for 
technical data rights needed to sustain such systems over their life 
cycle.[Footnote 48] DOD subsequently issued a new policy in July 2007 
to implement this requirement.[Footnote 49] Potential benefits from 
this action are long term because of the time frames required for 
developing and acquiring weapon systems, and it is uncertain what 
actions may have been taken by program offices as a result of this 
policy change or the extent in which any actions taken could improve 
the availability of required data in the future. To address 
inadequacies in the military's investments in its maintenance depots, 
the 2007 Defense Authorization Act required military departments to 
invest each fiscal year in the capital budgets of certain depots a 
total amount equal to at least 6 percent of the average total combined 
workload funded at all of the depots over the preceding 3 fiscal 
years.[Footnote 50] As a part of an ongoing engagement, we are 
reviewing the military departments' implementation of this mandate. 

We have also reported that DOD has not established policies or 
processes for determining core requirements for non-maintenance 
logistics capabilities for activities such as supply support, 
engineering, and transportation.[Footnote 51] Without identifying those 
core logistics activities that need to be retained in-house, the 
services may not be retaining critical capabilities as they proceed 
with contracting initiatives. For example, if DOD implements 
performance-based logistics--its preferred weapon system support 
arrangement--at the platform level, this can result in contracting out 
the program integration function, a core process which the private 
sector firms we interviewed during a 2004 review considered integral to 
their successful business operations. Another potential adverse effect 
of awarding a performance-based contract at the platform level is the 
loss of management control and expertise over the system that private 
sector companies told us were essential to retain in-house. In an 
earlier engagement, Army, Navy, and Air Force operational command 
officials told us that among their concerns with various types of long- 
term contractor logistics support arrangements were (1) retaining the 
ability to maintain and develop critical technical skills and 
knowledge, (2) limiting operational authority, and (3) reducing the 
program office's ability to perform essential management functions. 
Thus, without well-defined policy and procedures for identifying core 
requirements for critical logistics areas, the department may not be in 
a position to ensure that it will have the needed capabilities for the 
logistics system to support essential military weapons and equipment in 
an emergency. 

Uncertainties Exist About Projected Cost Effectiveness of Outsourcing 
Initiatives for DOD Logistics: 

Although DOD justified its logistics outsourcing initiatives based on 
the assumption that there would be significant cost savings, it is 
uncertain to what extent cost savings have occurred or will occur. 
Overall funding for depot maintenance costs and other logistics support 
costs are increasing significantly, both for work that is performed in 
military depots and by contractors. However, sufficient data are not 
available to determine whether increased contracting has caused DOD's 
costs to be higher than they would have been had the contracted 
activities been performed by DOD civilians. As noted earlier, 
assumptions about savings were a key part of DOD's shift in policy 
toward the performance of defense logistics by the private sector. 

While the 1995 Commission on Roles and Missions projected savings of 20 
percent from outsourcing, we questioned this group's savings 
assumptions, noting that its data did not support its depot 
privatization savings assumptions.[Footnote 52] These assumptions were 
based on reported savings from public-private competitions for 
commercial activities under Office of Management and Budget Circular A- 
76. The commercial activities were generally dissimilar to depot 
maintenance activities because they involved relatively simple, 
routine, and repetitive tasks that did not generally require large 
capital investments or highly skilled and trained personnel. Public 
activities were allowed to compete for these workloads and won about 
half the competitions. Additionally, many private sector firms 
generally made offers for this work due to the highly competitive 
nature of the private sector market, and estimated savings were 
generally greater in situations where there were larger numbers of 
private sector offerors. In contrast, most depot maintenance work is 
awarded without competition to the original equipment manufacturer. We 
noted that in the absence of a highly competitive market, privatizing 
unique, highly diverse, and complex depot maintenance workloads that 
require large capital investments, extensive technical data, and highly 
skilled and trained personnel would not likely achieve expected savings 
and could increase the costs of depot maintenance operations. We also 
questioned the Defense Science Board's projections of $30 billion in 
annual savings from privatizing almost all logistics support 
activities. 

We have also reported that whereas DOD expected to achieve large 
savings from its contracting out of more of its depot-level maintenance 
work, depot maintenance contracting represented a challenge to relying 
on commercial market forces. Whereas DOD was attempting to rely on 
competitive market forces, about 91 percent of the depot maintenance 
contracts we reviewed were awarded noncompetitively. We also noted that 
difficulties in precisely defining requirements also affected DOD's 
efforts to rely on competitive market forces. Further, we cautioned 
that DOD would need to increase the use of competitively awarded depot 
maintenance contracts and to address how best to assure product quality 
and reasonable prices when competitive market forces were not present. 

We have also raised questions about cost savings from DOD's increased 
use of performance-based logistics. Although DOD guidance recommends 
that program offices perform a business case analysis before adopting a 
performance based logistics approach to support weapon system, our 
reviews of the implementation of this approach show these analyses are 
not often done and DOD program offices could not demonstrate that they 
had achieved cost savings.[Footnote 53] Of the 15 programs we reviewed, 
11 program offices had developed a business case analysis--prior to 
entering into a performance-based logistics arrangement--which 
projected achieving significant cost savings. Only one of these 
programs offices had updated its business case analysis with actual 
cost data as recommended by DOD guidance. The one program office that 
did update its business case analysis determined that the contract did 
not result in the expected cost savings and subsequently restructured 
the program. Program office officials acknowledged limitations in their 
own information systems in providing reliable data to closely monitor 
contractor costs. While existing systems are capable of collecting some 
cost information, they are not capturing sufficiently detailed cost 
information for monitoring the performance-based logistics contracts. 

Our 2005 report on DOD's implementation of performance-based logistics 
included a recommendation on the validation of business case decisions 
to demonstrate whether they are resulting in reduced costs and 
increased performance. Also, given the stated limitations in cost 
information, we recommended that program offices be required to improve 
their monitoring of performance-based logistics arrangements by 
verifying the reliability of contractor cost and performance data. 
Although DOD concurred with our recommendations, we are currently 
evaluating the corrective actions taken. In addition, DOD currently 
does not require detailed reporting of contractor logistics support 
costs, including for performance based arrangements. 

Concluding Observations: 

In closing, I believe that we must engage in a fundamental 
reexamination of when and under what circumstances we should use 
contractors versus civil servants or military personnel. This is a 
major and growing concern that needs immediate attention. In general, I 
believe there is a need to focus greater attention on what type of 
functions and activities should be contracted out and which ones should 
not. Inherently governmental functions are required to be performed by 
government personnel, not private contractors. Government officials, in 
making decisions about whether to use contractors for services closely 
supporting inherently governmental functions, should assess risk and 
consider the need for enhanced management and oversight controls. Once 
the decision to contract has been made, we must address challenges we 
have observed in ensuring proper oversight of these arrangements-- 
especially considering the evolving and enlarging role of contractors 
in federal acquisitions. These concerns, identified in our work at 
several federal agencies including DOD, are more complex to address and 
may take on greater significance in contingency or military operations. 
As we have witnessed with contractors in Iraq, a specific decision made 
by a contractor can impact U.S. strategic and operational objectives in 
ways that were not considered in making the initial contracting 
decision. 

To address these concerns with regard to contractor support to deployed 
forces, we believe that in the immediate future, DOD's leadership needs 
to ensure implementation of and compliance with relevant existing 
guidance. In the longer term, we believe a broader examination of the 
use and role of contractors to support deployed forces is in order. As 
I stated in April 2007, it may be appropriate to ask if DOD has become 
too reliant on contractors to provide essential services.[Footnote 54] 
What is needed is a comprehensive, forward-looking, and integrated 
review of contractor support to deployed forces that provides the 
proper balance between contractor support and the core capabilities of 
military forces over the next several years. In a November 2007 
briefing on DOD transformation, I called on DOD to employ a total force 
management approach to planning and execution (e.g. military, civilian, 
and contractors).[Footnote 55] Many of the problems we have identified 
regarding the management and oversight of contractor support to 
deployed forces stem from DOD's reluctance to plan for contractors as 
an integral part of the total force. One way DOD could begin to address 
this issue is by incorporating the use and role of contractors into its 
readiness reporting. DOD regularly reports on the readiness status, 
capabilities assessments, and other reviews of the status and 
capabilities of its forces. Given the reality that DOD is dependent on 
contractors for much of its support in deployed locations, the 
department should include information on the specific missions 
contractors will be asked to perform, the operational impacts 
associated with the use of contractors, and the personnel necessary to 
effectively oversee and manage those contractors. 

Mr. Chairman, this concludes my prepared statement. I would be happy to 
respond to any questions you or other Members of the Subcommittee may 
have at this time. 

Contacts and Acknowledgments: 

For further information regarding this testimony, please contact 
William M. Solis at (202) 512-8365 or (solisw@gao.gov) or John Hutton 
at (202) 512-4841 or (huttonj@gao.gov). Contact points for our Offices 
of Congressional Relations and Public Affairs may be found on the last 
page of this product. Staff making key contributions to this statement 
were Julia Denman, Tom Gosling, Amelia Shachoy, Assistant Directors; 
Carleen Bennett, Laura Holliday, Randy Neice, Janine Prybyla, James 
Reynolds, Bill Russell, Karen Sloan, and Karen Thornton. 

[End of section] 

Appendix I: Systemic Acquisition Challenges at the Department of 
Defense: 

1. Service budgets are allocated largely according to top line 
historical percentages rather than Defense-wide strategic assessments 
and current and likely resource limitations. 

2. Capabilities and requirements are based primarily on individual 
service wants versus collective Defense needs (i.e., based on current 
and expected future threats) that are both affordable and sustainable 
over time. 

3. Defense consistently overpromises and underdelivers in connection 
with major weapons, information, and other systems (i.e., capabilities, 
costs, quantities, and schedule). 

4. Defense often employs a "plug and pray approach" when costs escalate 
(i.e., divide total funding dollars by cost per copy, plug in the 
number that can be purchased, then pray that Congress will provide more 
funding to buy more quantities). 

5. Congress sometimes forces the department to buy items (e.g., weapon 
systems) and provide services (e.g., additional health care for non- 
active beneficiaries, such as active duty members' dependents and 
military retirees and their dependents) that the department does not 
want and we cannot afford. 

6. DOD tries to develop high-risk technologies after programs start 
instead of setting up funding, organizations, and processes to conduct 
high-risk technology development activities in low-cost environments, 
(i.e., technology development is not separated from product 
development). Program decisions to move into design and production are 
made without adequate standards or knowledge. 

7. Program requirements are often set at unrealistic levels, then 
changed frequently as recognition sets in that they cannot be achieved. 
As a result, too much time passes, threats may change, or members of 
the user and acquisition communities may simply change their mind. The 
resulting program instability causes cost escalation, schedule delays, 
smaller quantities and reduced contractor accountability. 

8. Contracts, especially service contracts, often do not have 
definitive or realistic requirements at the outset in order to control 
costs and facilitate accountability. 

9. Contracts typically do not accurately reflect the complexity of 
projects or appropriately allocate risk between the contractors and the 
taxpayers (e.g., cost plus, cancellation charges). 

10. Key program staff rotate too frequently, thus promoting myopia and 
reducing accountability (i.e., tours based on time versus key 
milestones). Additionally, the revolving door between industry and the 
department presents potential conflicts of interest. 

11. The acquisition workforce faces serious challenges (e.g., size, 
skills, knowledge, and succession planning). 

12. Incentive and award fees are often paid based on contractor 
attitudes and efforts versus positive results (i.e., cost, quality, and 
schedule). 

13. Inadequate oversight is being conducted by both the department and 
Congress, which results in little to no accountability for recurring 
and systemic problems. 

14. Some individual program and funding decisions made within the 
department and by Congress serve to undercut sound policies. 

15. Lack of a professional, term-based Chief Management Officer at the 
department serves to slow progress on defense transformation and reduce 
the chance of success in the acquisitions/contracting and other key 
business areas. 

[End of section] 

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Washington, D.C.: March. 7, 2008. 

Intelligence Reform: GAO Can Assist the Congress and the Intelligence 
Community on Management Reform Initiatives. GAO-08-413T. Washington, 
D.C.: February 29, 2008. 

Federal Acquisition: Oversight Plan Needed to Help Implement 
Acquisition Advisory Panel Recommendations. GAO-08-160. December 20, 
2007. 

Department of Homeland Security: Improved Assessment and Oversight 
Needed to Manage Risk of Contracting for Selected Services. GAO-07-990. 
Washington, D.C.: September 17, 2007. 

Federal Acquisitions and Contracting: Systemic Challenges Need 
Attention. GAO-07-1098T. Washington, D.C.: July 17, 2007. 

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D.C.: June 6, 2007. 

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6, 2006. 

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and Abuse. GAO-06-838R. Washington, D.C.: July 7, 2006. 

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Rita, GAO-06-461R. Washington, D.C.: March 16, 2006. 

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for Procurement Integrity. GAO-05-341. Washington, D.C.: April 29, 
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Support Military Operations. GAO-05-201. Washington, D.C.: April 25, 
2005. 

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Management Challenges. GAO-04-605. Washington, D.C.: June 1, 2004. 

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Planning. GAO-04-39. Washington, D.C.: December 11, 2003. 

Human Capital: A Self-Assessment Checklist for Agency Leaders. GAO/GGD- 
99-179. Washington, D.C.: September 1, 1999. 

Government Contractors: Are Service Contractors Performing Inherently 
Governmental Functions? GAO/GGD -92-11. Washington, D.C.: November 18, 
1991. 

Energy Management: Using DOE Employees Can Reduce Costs for Some 
Support Services. GAO/RCED 91-186. Washington, D.C.: August 16, 1991. 

Civil Servants and Contractor Employees: Who Should Do What for the 
Federal Government? FPCD-81-43. Washington, D.C.: June 19, 1981. 

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Actions Needed to Improve DOD's Oversight and Management of Contractors 
in Future Operations. GAO-08-436T. Washington, D.C.: January 24, 2008. 

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and Oversight Plan for the Equipment Maintenance Contract in Kuwait. 
GAO-08-316R. Washington, D.C.: January 23, 2008. 

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Better Control DOD's Acquisition of Services. GAO-07-832T. Washington, 
D.C.: May 10, 2007. 

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standing Problems with Management and Oversight of Contractors 
Supporting Deployed Forces. GAO-07-145. Washington, D.C.: December 18, 
2006. 

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Management Challenges. GAO-06-1130T. Washington, D.C.: September 28, 
2006. 

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Requires Strengthened Oversight. GAO-04-854. Washington, D.C.: July 19, 
2004. 

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Washington, D.C.: June 24, 2003. 

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2004. 

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Public Depot System. GAO-02-105. Washington D.C.: October 12, 2001: 

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Affecting Depots and Arsenals. GAO/NSIAD-99-31. Washington. D.C.: 
November 30, 1998. 

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Systems to the Private Sector. GAO/NSIAD-98-8. Washington, D.C.: March 
31, 1998. 

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Depot System Uncertain. GAO/NSIAD-96-165. Washington, D.C.: May 21, 
1996. 

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Private Mix. GAO/T-NSIAD-96-146. Washington, D.C.: April 16, 1996. 

Depot Maintenance: Issues in Allocating Workload Between the Public and 
Private Sectors. GAO/T-NSIAD-94-161. Washington, D.C.: April 12, 1994. 

Depot Maintenance: Issues in Management and Restructuring to Support a 
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[End of section] 

Footnotes: 

[1] GAO, Stabilizing and Rebuilding Iraq: Conditions in Iraq Are 
Conducive to Fraud, Waste, and Abuse, GAO-07-525T (Washington, D.C.: 
Apr. 23, 2007). 

[2] GAO, Military Operations: Implementation of Existing Guidance and 
Other Actions Needed to Improve DOD's Oversight and Management of 
Contractors in Future Operations, GAO-08-436T (Washington, D.C.: Jan. 
24, 2008). 

[3] The Panel was established by section 1423 of the Services 
Acquisition Reform Act of 2003, Pub. L. No 108-136, Title XIV. The 
Report of the Acquisition Advisory Panel to the Office of Federal 
Procurement Policy and the United States Congress was dated January 
2007. 

[4] Office of Management and Budget Circular A-76 (Revised) (May 29, 
2003). 

[5] Pub. L. No. 105-270, §2(a) (1998). In 1999, OMB incorporated the 
FAIR Act requirements into the A-76 process. 

[6] FAR §2.101. 

[7] FAR §37.114; OFPP Policy Letter 93-1: Management Oversight of 
Services Contracting, Office of Federal Procurement Policy, May 18, 
1994. 

[8] National Defense Authorization Act for Fiscal Year 2008, Pub. L. 
No. 110-181, § 2823 (2008). 

[9] GAO, Highlights of a GAO Forum: Federal Acquisition Challenges and 
Opportunities in the 21st Century, GAO-07-45SP (Washington, D.C.: Oct. 
6, 2006). 

[10] The Panel was established by section 813 of the John Warner 
National Defense Authorization Act for Fiscal Year 2007, Pub. L. No. 
109-364 (2006). Its 2007 Report to Congress was the first of three 
annual reports mandated by the act. 

[11] Defense Acquisition University, Contracting Out Procurement 
Functions: An Analysis, DAU Research Report 06-001 (Fort Belvoir, VA.: 
November 2005). 

[12] GAO, Defense Acquisitions: Role of Lead Systems Integrator on 
Future Combat Systems Program Poses Oversight Challenges, GAO-07-380 
(Washington, D.C.: June 6, 2007). 

[13] GAO, Intelligence Reform: GAO Can Assist the Congress and the 
Intelligence Community on Management Reform Initiatives, GAO-08-413T 
(Washington, D.C.: Feb. 29, 2008). 

[14] The U.S. Intelligence Community's Five Year Strategic Human 
Capital Plan. 

[15] See for example, GAO, Civil Servants and Contractor Employees: Who 
Should Do What for the Federal Government? FPCD-81-43 (Washington, 
D.C.: June 19, 1981); GAO, Energy Management: Using DOE Employees Can 
Reduce Costs for Some Support Services, GAO/RCED 91-186 (Washington, 
D.C.: Aug. 16, 1991); GAO, Government Contractors: Are Service 
Contractors Performing Inherently Governmental Functions? GAO/ GGD-92-
11 (Washington, D.C.: Nov. 18, 1991). 

[16] GAO, Human Capital: A Self-Assessment Checklist for Agency 
Leaders, GAO/GGD-99-179 (Washington, D.C.: Sept. 1, 1999). 

[17] GAO, Department of Homeland Security: Improved Assessment and 
Oversight Needed to Manage Risk of Contracting for Selected Services, 
GAO-07-990 (Washington, D.C.: Sept. 17, 2007). 

[18] GAO, Defense Acquisitions: Tailored Approach Needed to Improve 
Service Acquisition Outcomes, GAO-07-20 (Washington, D.C.: Nov. 9, 
2006). 

[19] GAO-07-990. 

[20] GAO, Defense Ethics Program: Opportunities Exist to Strengthen 
Safeguards for Procurement Integrity, GAO-05-341 (Washington, D.C.: 
Apr. 29, 2005). 

[21] GAO, Agency Management of Contractors Responding to Hurricane 
Katrina and Rita, GAO-06-461R (Washington, D.C.: Mar. 16, 2006). 

[22] GAO, Interagency Contracting: Problems with DOD's and Interior's 
Orders to Support Military Operations, GAO-05-201 (Washington, D.C.: 
Apr. 25, 2005). 

[23] GAO, Military Operations: High-Level DOD Action Needed to Address 
Long-standing Problems with Management and Oversight of Contractors 
Supporting Deployed Forces, GAO-07-145 (Washington, D.C.: Dec. 18, 
2006). 

[24] GAO-08-436T. 

[25] GAO, Military Operations: Contractors Provide Vital Services to 
Deployed Forces but Are Not Adequately Addressed in DOD Plans, GAO-03-
695 (Washington, D.C.: June 24, 2003). 

[26] The Joint Chiefs of Staff, Doctrine for Logistic Support of Joint 
Operations, Joint Publication 4-0 (Washington, D.C.: April 2000). 

[27] GAO, Military Operations: DOD's Extensive Use of Logistics Support 
Contracts Requires Strengthened Oversight, GAO-04-854 (Washington, 
D.C.: July 19, 2004). 

[28] GAO-03-695. 

[29] GAO-03-695 and GAO-07-145. 

[30] GAO-04-854. 

[31] GAO-07-145. 

[32] GAO, Defense Logistics: The Army Needs to Implement an Effective 
Management and Oversight Plan for the Equipment Maintenance Contract in 
Kuwait, GAO-08-316R (Washington, D.C.: Jan. 22, 2008). 

[33] Commission on Army Acquisition and Program Management in 
Expeditionary Operations, Urgent Reform Required: Army Expeditionary 
Contracting (Oct. 31, 2007). 

[34] GAO-07-145. 

[35] GAO, Information Technology: DOD Needs to Leverage Lessons Learned 
from Its Outsourcing Projects, GAO-03-371 (Washington, D.C.: Apr. 25, 
2003); and Military Training: Potential to Use Lessons Learned to Avoid 
Past Mistakes Is Largely Untapped, GAO/NSIAD-95-152 (Washington, D.C.: 
Aug. 9, 1995). 

[36] GAO-07-145. 

[37] GAO-07-145. 

[38] GAO-07-145. 

[39] Depot maintenance is the highest level of maintenance within DOD 
and generally refers to major maintenance and repairs, such as 
overhauling, upgrading, or rebuilding parts, assemblies, or 
subassemblies. Depot maintenance has long been provided by a mix of 
government-owned depots and private contractors. 

[40] Section 2464 of Title 10 of the U.S. Code provides that it is 
essential for the national defense that DOD maintain a core logistics 
capability that is government-owned and government-operated to ensure 
the existence of a ready and controlled source of technical competence 
and resources necessary to ensure a timely and effective military 
response to mobilizations, national defense emergencies, and 
contingencies. 

[41] Contractor logistics support arrangements may involve the 
contractor performing maintenance, assuming responsibility for life- 
cycle management of the system, and performing sustainment activities, 
including parts management. These arrangements may take various forms, 
including performance-based logistics. 

[42] Commission on Roles and Missions, Directions for Defense (May 24, 
1995). 

[43] Defense Science Board, Report of the Defense Science Board Task 
Force on Outsourcing and Privatization (August 1996). Also see Defense 
Science Board, Report on the Defense Science Board 1996 Summer Study on 
Achieving an Innovative Support Structure for 21st Century Military 
Superiority: Higher Performance at Lower Costs (November 1996). 

[44] GAO, Army Industrial Facilities: Workforce Requirements and 
Related Issues Affecting Depots and Arsenals, GAO/NSIAD-99-31 
(Washington, D.C.: Nov. 30, 1998). 

[45] GAO, Defense Logistics: Actions Needed to Overcome Capability Gaps 
in the Public Depot System, GAO-02-105 (Washington. D.C.: Oct. 12, 
2001). 

[46] DOD Instruction 4151.20 (Jan. 5, 2007) states that pursuant to DOD 
policy, DOD components must apply the core capability requirements 
determination process to identify required core capabilities and the 
workloads necessary to sustain effectively the core capabilities. 

[47] GAO, Weapons Acquisition: DOD Should Strengthen Policies for 
Assessing Technical Data Needs to Support Weapon Systems, GAO-06-839 
(Washington, D.C.: July 14, 2006). 

[48] Pub. L. No. 109-364, § 802 (2006). 

[49] A July 19, 2007 memorandum from the Under Secretary of Defense 
(Acquisition, Technology, and Logistics) for the service acquisition 
executives required that program managers assess the long-term 
technical data needs of their systems and reflect that assessment in a 
data management strategy which must be integrated with other life-cycle 
sustainment planning, assess certain data requirements, and address the 
merits of a priced contract option for the future delivery of technical 
data. 

[50] Pub. L. No. 109-364, § 332 (2006). 

[51] GAO-02-105. 

[52] GAO, Defense Depot Maintenance: Commission on Roles and Mission's 
Privatization Assumptions Are Questionable, NSIAD-96-161 (Washington, 
D.C.: July 15, 1996). 

[53] GAO, Defense Management: DOD Needs to Demonstrate That Performance-
Based Logistics Contracts Are Achieving Expected Benefits, GAO-05-966 
(Washington, D.C.: Sept. 9, 2005). 

[54] GAO-07-525T. 

[55] GAO, Defense Transformation: Challenges and Opportunities, GAO-08-
323CG (Washington, D.C.: Nov. 29, 2007). 

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