Defense Outsourcing: Better Data Is Needed to Support Overhead Rates for A-76 Studies
NSIAD-98-62
Published: Feb 27, 1998. Publicly Released: Feb 27, 1998.
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Highlights
Pursuant to a congressional request, GAO reviewed three provisions associated with a revision to the Office of Management and Budget (OMB) Circular A-76 supplemental handbook, focusing on: (1) the basis for OMB's new requirement that a standardized 12-percent overhead rate be applied to in-house cost estimates, regardless of the type of commercial activity or where in the country the activity is to be performed; (2) whether the Department of Defense (DOD) has developed a separate overhead rate for military personnel and, if so, the basis for that rate; and (3) how best-value criteria are expected to be used in A-76 competitions.
Recommendations
Recommendations for Executive Action
Agency Affected | Recommendation | Status |
---|---|---|
Office of Management and Budget | The Director, OMB, and the Secretary of Defense should work together to develop a methodology that will determine an appropriate interim overhead rate or range of rates for DOD commercial activities. The methodology needs to have an analytical base and include appropriate indirect overhead costs as well as general and administrative costs identified in the A-76 supplemental handbook. The methodology also needs to consider the cost of military personnel that may be in the various categories of overhead costs and the unique nature of individual business activities being assessed. Once OMB and DOD agree on a methodology, OMB should consider its applicability to civilian agencies. |
Closed – Not Implemented
OMB does not plan to develop an interim overhead rate. OMB's position is that more accurate overhead rates can be developed and supported by DOD and civilian agencies after cost accounting systems that comply with federal cost accounting standards are in place. However, OMB recognizes that this is a long-term solution.
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Department of Defense | The Director, OMB, and the Secretary of Defense should work together to develop a methodology that will determine an appropriate interim overhead rate or range of rates for DOD commercial activities. The methodology needs to have an analytical base and include appropriate indirect overhead costs as well as general and administrative costs identified in the A-76 supplemental handbook. The methodology also needs to consider the cost of military personnel that may be in the various categories of overhead costs and the unique nature of individual business activities being assessed. Once OMB and DOD agree on a methodology, OMB should consider its applicability to civilian agencies. |
Closed – Not Implemented
DOD does not plan to take action on GAO's recommendation unless directed to do so by OMB. At this time, OMB does not plan to direct DOD to respond to the recommendation.
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Contract costsCost accountingCost effectiveness analysisDefense procurementMilitary personnelOverhead costsPrivatizationPrivate sectorU.S. Air ForceBid proposals