DOD Contract Services:

Improved Planning and Implementation of Fiscal Controls Needed

GAO-15-115: Published: Dec 11, 2014. Publicly Released: Dec 11, 2014.

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What GAO Found

The Department of Defense (DOD) exceeded its identified limit on contract services by $1.72 billion in 2012 and spent $500 million less than the limit in 2013. GAO found that all military departments exceeded their Comptroller-provided spending targets in fiscal year 2012 due to late guidance. In fiscal year 2013, some components improved planning and implemented stronger fiscal controls over contract services, such as monitoring spending during the year, helping DOD meet its limit for fiscal year 2013. However, the Army exceeded its spending target in 2013 due to inaccurate budget estimates and weaknesses in planning by not soliciting inputs on commands' contract services spending plans.

Actions to Manage Contract Services Spending in Fiscal Year 2013 (in billions)

Military Department

Solicited Commands' Inputsa

Set Command Spending Targets

Monitored Command Spending

Spent Against Targets

Air Force

✓

✓

✓

$2.8 under

Army

  

✓

  

$2.7 over

Navy

✓

  

✓

$0.5 under

Source: GAO analysis of military department documents | GAO-15-115 Note: Table does not include contract services spending by the defense agencies, which are also included in the spending limit.

a A unit or organization reporting to the secretaries of the military departments or the heads of the defense agencies.

Federal internal control standards call for effective control activities that enforce guidance to help ensure stewardship of government resources. Improved planning and consistent implementation of fiscal controls across the department could better position DOD to manage contract services spending.

Comparable and timely data are not available to determine if DOD implemented the mandated funding reductions for contracts with closely associated with inherently governmental functions—those that put the government at risk of contractors inappropriately influencing government decisions. DOD's guidance calls for reliance on data from the annual inventory of contracted services—an identification of the number of contractors and associated costs for services provided to DOD—to measure required reductions; however, these data did not include the obligation data needed to measure funding reductions in closely associated with inherently governmental functions. DOD updated its inventory guidance in 2013 to collect such information, but these data will not be comparable to previous years due to changes in methodology and will not be available until fiscal year 2015, after the statutory requirement has expired.

Similarly, data are not available to determine if DOD met the required funding reductions for staff augmentation contracts—contractors under the direction of a government official. DOD's guidance did not establish a baseline for staff augmentation or identify the data that should be used to determine if the reductions were achieved. DOD issued supplemental guidance in May 2014 instructing components to report in October 2014 on steps taken to implement these reductions. However, the current statutory requirement expired in September 2014.

Why GAO Did This Study

In fiscal year 2013, DOD reported spending more than $170 billion on contract services—contractors performing functions such as information technology support or maintenance of military equipment—constituting more than half of DOD's total acquisition spending. The National Defense Authorization Act (NDAA) for Fiscal Year 2012, section 808, limited DOD's contract services spending for fiscal years 2012 and 2013 and required reductions in select contract services. Subsequent revisions to the NDAA extended the spending limits through fiscal year 2014.

Congress requested and mandated GAO to review DOD's implementation of the required reductions. This report addresses the extent to which DOD implemented, in fiscal years 2012 and 2013: (1) contract services spending limits, (2) 10 percent funding reductions for closely associated with inherently governmental functions, and (3) 10 percent funding reductions for staff augmentation contracts. GAO reviewed relevant guidance; analyzed DOD financial, inventory, and other contract services data; and interviewed relevant officials.

What GAO Recommends

Congress should consider extending the time period for DOD's implementation of funding reductions in select contract functions. Further, GAO recommends that DOD improve planning and consistently implement fiscal controls to better manage contract services, among other actions. DOD concurred with the recommendations.

For more information, contact Marie A. Mak at (202) 512-4841 or MakM@gao.gov.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Section 813 of the National Defense Authorization Act for Fiscal Year 2015 extended the time period for DOD to implement required funding reductions in closely associated with inherently governmental functions and staff augmentation contracts through fiscal year 2015.

    Matter: To ensure that DOD takes action to implement required funding reductions in closely associated with inherently governmental functions and staff augmentation contracts, Congress should consider extending the time period for DOD to achieve the reductions.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In commenting on this report DOD concurred with this recommendation. DOD did not update its methodology to calculate the civilian personnel adjustment to the spending limit for fiscal year 2014. However, in May 2015, the Under Secretary of Defense, Comptroller, issued guidance for implementation of the contract services spending limit for fiscal year 2015 which consistently calculated the civilian personnel adjustment by excluding civilian medical personnel.

    Recommendation: To ensure the management of the required portfolio of contract services and that required reductions are achieved the Secretary of Defense should ensure that the Comptroller updates the department's methodology for determining compliance with the aggregate spending limit for 2014 to consistently calculate the civilian personnel adjustment to take into account any categories of services excluded from the spending limit.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: In commenting on this report DOD concurred with this recommendation. DOD did not update it methodology to exclude all budgeted amounts for research and development from the limit for fiscal year 2014. However, in May 2015, the Under Secretary of Defense, Comptroller, issued guidance for implementation of the contract services spending limit for fiscal year 2015 which excludes all research and development budget amounts from the spending limit.

    Recommendation: To ensure the management of the required portfolio of contract services and that required reductions are achieved the Secretary of Defense should ensure that the Comptroller updates the department's methodology for determining compliance with the aggregate spending limit for 2014 to adjust the spending limit to exclude research and development obligations from both the limit and actual expenditures as required.

    Agency Affected: Department of Defense

  3. Status: Closed - Not Implemented

    Comments: In commenting on this report DOD concurred with this recommendation. As of August 2018, DOD has not taken actions to evaluate fiscal controls and ensure consistent implementation of these controls by the military departments to improve DOD's management of future contract services spending. DOD officials stated that they have closed this recommendation and plan no further action because the contract services spending limitation provision expired in fiscal year 2016.

    Recommendation: To ensure the management of the required portfolio of contract services and that required reductions are achieved the Secretary of Defense should evaluate fiscal controls used by the military departments to identify effective practices and ensure they are consistently implemented to improve the management of contract services spending.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: DOD concurred with this recommendation and Section 813 of the National Defense Authorization Act for fiscal year 2015 facilitated DOD's implementation by instructing DOD to identify alternative data sources, such as advisory and assistance services, to measure compliance with the required funding reductions in closely associated with inherently governmental and staff augmentation functions. In May 2015, the DOD Comptroller issued guidance instructing components to submit a separate budget exhibit for the 2017 budget submission with advisory and assistance services obligations for fiscal years 2010 through 2015 to demonstrate the required funding reductions. If components are not in compliance with the full 20 percent reduction by fiscal year 2015, the Comptroller's office plans to enforce the reduction by making adjustments to component funding levels for the fiscal year 2017 budget submissions.

    Recommendation: To ensure the management of the required portfolio of contract services and that required reductions are achieved the Secretary of Defense should, given the limitations of the data available from the inventory of contracted services for fiscal years 2011 and 2012, direct the Office of Personnel and Readiness to identify additional data sources to corroborate data with that reported in the fiscal year 2013 inventory to help ensure funding reductions called for in the law are implemented.

    Agency Affected: Department of Defense

 

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