DOD Service Contracts: Actions Needed to Identify Efficiencies and Forecast Budget Needs
Fast Facts
The Department of Defense spends hundreds of billions of dollars on contracts for services, such as program administration and tech support.
DOD policy requires the military departments to collect and review data about their service contracts with a value of $10 million or more. Having such data available could help DOD contract more efficiently and save money.
While the Navy collects and reviews this data, the Air Force and the Army are not consistently doing so. Our recommendations are to help DOD get and use this data.
DOD contract management—including service contracts—is on our High Risk List.
Highlights
What GAO Found
Services performed by contractors, such as administrative and technical support, account for about half of the Department of Defense's (DOD) contract obligations. Obligations on contracts for services increased from fiscal year 2017 through 2020 before decreasing in fiscal years 2021 and 2022, and ranged from $184 billion to $226 billion over the period.
DOD has processes to validate individual service requirements but lacks some data needed to identify broader efficiencies among those requirements. DOD requires the military departments—the Air Force, Army, and Navy—to provide data that can be reviewed to identify efficiencies for service requirements valued at $10 million or more. GAO found that the Navy aggregates and reviews data on service requirements at that threshold. However, the Army does not aggregate data on service requirements, and the Air Force only does so for service requirements with a value at or above $100 million. This results in missed opportunities to identify efficiencies and potential cost savings among service requirements on contracts totaling billions of dollars, as shown in the figure.
Military Departments' Obligations on Contracts for Services by Different Dollar Value Thresholds, Fiscal Years 2017–2022
DOD made progress forecasting budget needs for service contracts across a 5-year period, as required by law, but communication challenges affected the military departments' ability to provide reliable data. For example, the military departments lacked timely guidance on implementing the forecasting requirement and the methodology and data sources to use. In January 2023, DOD established a working group to develop a path forward for fully implementing the forecasting requirement. But, this working group is in its early stages, having just recently developed a charter. Further, it has not established timeframes for communicating the methodology and data sources that the military departments should use. Without setting timeframes and clarifying how to forecast service contract budget needs, DOD cannot ensure that future budget submissions—starting with fiscal year 2026—will provide Congress with reliable and useful information for decision-making and oversight.
Why GAO Did This Study
DOD obligates hundreds of billions of dollars each year on service contracts. Despite some progress, DOD has faced challenges with managing service contracts. As such, law required that DOD refine processes to validate service requirements and begin forecasting budget needs across a 5-year period.
A Joint Explanatory statement and House Committee report included provisions for GAO to assess DOD's processes for validating service requirements. This report assesses DOD's (1) trends in service contract obligations for fiscal years 2017–2022, (2) processes for validating service requirements, and (3) progress forecasting budget needs for service contracts over a 5-year period.
GAO reviewed federal procurement data for fiscal years 2017–2022, and selected a major command from each military department based on service contract obligations. GAO reviewed DOD and military department policies and analyzed a nongeneralizable sample of service requirements from each selected major command. GAO also reviewed DOD budget guidance for fiscal years 2023 and 2024, and interviewed DOD officials.
Recommendations
GAO is making five recommendations, including that: the Air Force and Army update guidance to aggregate and review data on service requirements, and DOD specifies how to forecast budget needs for service contracts. DOD concurred with three recommendations and partially concurred with two based on terminology. GAO believes the recommendations are sound as stated.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of the Air Force | The Secretary of the Air Force should revise its service acquisition policy to ensure major commands collectively prioritize service requirements valued between $10 million and under $100 million. (Recommendation 1) |
DOD concurred with this recommendation and in response the Air Force is updating agreements between the Senior Services Manager and each major command to ensure requirements valued between $10 million and $100 million are collectively prioritized. According to Air Force officials, the agreements will become part of the operating policy for service acquisitions once signed. As of July 2024, 16 of 18 agreements have been updated and the Air Force anticipates the remaining agreements to be updated in 2024.
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| Department of the Air Force | The Secretary of the Air Force should revise its service acquisition policy to require an official who is responsible for the oversight of services, such as the Air Force's Senior Services Manager, to aggregate and review data on service requirements valued between $10 million and under $100 million to identify efficiencies. (Recommendation 2) | DOD concurred with this recommendation and in response the Air Force is updating agreements between the Senior Services Manager and each major command to ensure their respective Services Advocates aggregate and review data on service requirements valued between $10 million and $100 million to identify efficiencies. Further, the updated agreements will require the Service Advocates to report the results to the Senior Services Manager annually, and the Senior Services Manager, in turn, will review the results to identify Air Force-wide efficiencies. According to Air Force officials, as of July 2024, 16 of 18 agreements have been updated and the Air Force anticipates the remaining...
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| Department of the Army | The Secretary of the Army should revise its service acquisition policy to require an official who is responsible for the oversight of services, such as the Army's Senior Services Manager, to aggregate and review data on service requirements valued at $10 million or more to identify efficiencies. (Recommendation 3) |
DOD partially concurred with this recommendation because the Army said it should decide who is responsible for aggregating and reviewing service requirements. Our inclusion of the Army's Senior Services Manager in the recommendation was not meant to be prescriptive, but rather a suggestion of an official who is well-positioned to perform such reviews. As of August 2024, the Army was in the process of updating Army Regulation 70-13, "Management and Oversight of Service Acquisitions," to provide details on reviewing service requirements, including the official who will be responsible for aggregating and reviewing them. The Army plans to issue the updated regulation in 2024.
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| Department of Defense | The Secretary of Defense should require that the Under Secretary of Defense, Comptroller, in coordination with other relevant offices involved in the recently established services working group, to develop a charter that includes steps that ensure information requirements for the fiscal year 2026 and future budget submissions are communicated to the military departments in a timely manner. (Recommendation 4) | DOD concurred with our recommendation on drafting a charter for its recently established Services Acquisition Working Group to ensure information requirements are communicated in a timely matter. In June 2023, after receiving a draft of our report, DOD issued a charter for its Services Acquisition Executive Sterring Committee-a forum to discuss cross-functional issues related to service acquisitions-under which the working group falls. We reviewed this charter and found that it codifies a communication framework for implementing requirements related to improving the oversight, management, and execution of service contracts, such as the statutory requirement to annually forecast budget...
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| Department of Defense |
Priority Rec.
The Secretary of Defense should ensure that the Under Secretary of Defense, Comptroller, in coordination with other relevant offices involved in the recently established services working group, specifies the data sources and methodology for forecasting budget needs for service contracts across the Future-Years Defense Program to inform its fiscal year 2026 and future budget submission. (Recommendation 5) |
DOD partially concurred with this recommendation. As of August 2024, OUSD(C) issued budget guidance that delegates the responsibility to the military departments for determining the methodologies and data sources to forecast service contract budget needs across the FYDP. DOD officials stated their efforts to collect and review the service contract data are in progress, and OUSD(C) is currently projecting it will complete the necessary actions to address this recommendation in October 2024.
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