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United States Government Accountability Office: 
GAO: 

Report to the Ranking Member, Committee on the Judiciary, 

U.S. Senate: 

June 2011: 

Pension Benefit Guaranty Corporation: 

More Strategic Approach to Contracting Still Needed: 

GAO-11-588: 

GAO Highlights: 

Highlights of GAO-11-588, a report to the Ranking Member, Committee on 
the Judiciary, U.S. Senate. 

Why GAO Did This Study: 

The Pension Benefit Guaranty Corporation (PBGC) insures the pension 
benefits of more than 44 million U.S. workers and retirees in more 
than 27,500 private defined benefit Number of Plans. In response to 
growing workloads over the last 20 years, PBGC has come to rely 
heavily on contractors to perform its work. With the influx of plan 
terminations during the recent economic downturn, GAO was asked to 
examine: (1) how PBGC decides between contracting for services and 
performing services in house; (2) the steps PBGC has taken to 
strengthen its internal controls over the contracting process; and (3) 
PBGCs implementation of a performance-based approach in its recent 
contracts. 

To conduct this study, GAO reviewed federal and PBGC contracting 
policies; interviewed PBGC officials and selected contractors; 
examined a small judgmental sample of eight recent contracts selected 
based on type, amount, and location; and assessed PBGCs actions in 
response to past GAO and PBGC Inspector General (IG) recommendations. 

What GAO Found: 

PBGCs contracting decisions are based primarily on historical 
practice within each of its departments rather than strategic 
assessment. Nearly three-fourths of PBGCs budget is allocated to 
contractors, yet PBGC does not have a strategic agency-level plan for 
contracting. PBGC often justifies extensive use of contractors based 
on the need to manage fluctuating workloads; however, historical data 
appear to indicate that PBGC has more contractor workers than needed 
to respond to workload fluctuations. Some of its contractor use is 
justified based on needed expertise or lower cost. However, because 
PBGC does not routinely conduct cost-benefit or risk analyses as part 
of its contract decision-making process, the efficiency and 
effectiveness of its contracting is unknown, and PBGCs long-term 
extensive reliance on contractors may be placing the agency at risk of 
eroding management control in core functions. 

At the same time, PBGC has adopted new policies and procedures to 
improve contractor oversight and ensure that federal contracting 
requirements are met, addressing past GAO and PBGC IG recommendations 
in this area. For example, PBGC has issued new standard operating 
procedures and is conducting training for staff involved in the 
agencys contracting activities. In addition, PBGC has increased the 
use of competitive and fixed price contracts, which provide more 
integrity to the contracting process by limiting government cost and 
performance risk. 

In addition, PBGC has implemented new guidance and training to improve 
staff knowledge and understanding of performance-based contracting and 
has expanded its use. Between fiscal years 2008 and 2010, PBGC 
increased the use of performance-based contracts from 2 to 12 percent. 
PBGC also increased its incorporation of performance metrics across 
various types of contracts to ensure performance is measured in terms 
of outcomes. Thus, past GAO and IG recommendations in this area have 
been partially addressed. However, unlike work performed in house, 
PBGC does not require performance metrics for its contract work to be 
linked to agency mission and goals, which is important to ensuring 
such work is well integrated into its strategic plan. 

Figure: Levels of Federal Employees and Contractor Workers Compared 
with Fluctuations in Number of Cumulative Terminated Number of Plans, 
Fiscal Years 2000 to 2010: 

[Refer to PDF for image: combined line and stacked vertical bar graph] 

Fiscal year: 2000; 
Contractor workers: 763; 
Federal employees: 791; 
Number of Plans: 2,874 

Fiscal year: 2001; 
Contractor workers: 775; 
Federal employees: 919; 
Number of Plans: 2,976 

Fiscal year: 2002; 
Contractor workers: 773; 
Federal employees: 1,248; 
Number of Plans: 3,132 

Fiscal year: 2003; 
Contractor workers: 754; 
Federal employees: 1,342; 
Number of Plans: 3,287 

Fiscal year: 2004; 
Contractor workers: 776; 
Federal employees: 1,331; 
Number of Plans: 3,479 

Fiscal year: 2005; 
Contractor workers: 784; 
Federal employees: 1,639; 
Number of Plans: 3,585 

Fiscal year: 2006; 
Contractor workers: 822; 
Federal employees: 1,768; 
Number of Plans: 3,683 

Fiscal year: 2007; 
Contractor workers: 811; 
Federal employees: 1,502; 
Number of Plans: 3,793 

Fiscal year: 2008; 
Contractor workers: 880; 
Federal employees: 1,420; 
Number of Plans: 3,860 

Fiscal year: 2009; 
Contractor workers: 905; 
Federal employees: 1,365; 
Number of Plans: 4,003 

Fiscal year: 2010; 
Contractor workers: 955; 
Federal employees: 1,439; 
Number of Plans: 4,150 

Source: GAO analysis of PBGC annual workforce data and cumulative data 
for terminated and trusteed plans. 

[End of figure] 

What GAO Recommends: 

GAO recommends that PBGC improve its strategic approach to contracting 
by developing an inventory of contract resources, assessing risk in 
areas heavily reliant on contractors, documenting its consideration of 
performance-based contracting, and linking contractor performance to 
agency goals. PBGC agrees with our recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-11-588] or key 
components. For more information, contact Barbara Bovbjerg at (202) 
512-7215 or BovbjergB@gao.gov or William Woods at (202) 512-4841 or 
WoodsW@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Decisions to Contract Based More on Past Practice than Strategic 
Assessment: 

Steps Taken to Strengthen Its Contracting Process: 

Increased Use of a Performance-Based Approach to Contracting, but 
Links to Agency Goals Still Lacking: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Federal Contracting Policies and Guidance Cited in This 
Report: 

Appendix II: Summary of PBGC Actions Taken to Improve Contracting in 
Response to Previous Recommendations: 

Appendix III: Scope and Methodology of the Contract File Review: 

Appendix IV: Elements of a Performance-Based Service Acquisition 
Contract: 

Appendix V: Comments from the Pension Benefit Guaranty Corporation: 

Appendix VI: GAO Contacts and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Rationales and Extent of Contracting in PBGC's Four Main 
Program Departments, Fiscal Year 2010: 

Table 2: New Tools and Practices for PBGC's Contract Award Process: 

Table 3: Pattern of Increased Compliance Postadoption of the December 
2009 Updated Procedures: 

Table 4: New Tools and Practices for PBGC's Contract Oversight: 

Table 5: Performance-Based Contracting Requirements Described in the 
2009 Updated Procedures: 

Table 6: Steps Taken by PBGC in Response to Previous GAO Contract- 
Related Recommendations, 2000 to Present: 

Table 7: Steps Taken by PBGC in Response to Previous IG Contract- 
Related Recommendations, 2005 to Present: 

Table 8: Summary of PBGC Contracts Selected for Review: 

Table 9: Indicators of Key Contracting Process Controls: 

Table 10: Evidence of Contracting Process Management Controls at PBGC: 

Figures: 

Figure 1: Percentage and Amount of PBGC's Contract Spending By Four 
Main Program Departments, Fiscal Year 2010: 

Figure 2: New and Total Cumulative Number of Number of Plans 
Terminated and Trusteed by PBGC (1975-2010): 

Figure 3: New and Total Cumulative Participants in Number of Plans 
Terminated and Trusteed by PBGC, Fiscal Years 2000-2010: 

Figure 4: New and Total Cumulative Assets under PBGC Management, 
Fiscal Years 2000-2010: 

Figure 5: Levels of Federal Employees and Contractor Workers Compared 
with Fluctuations in Various Workload Indicators, Fiscal Years 2000- 
2010: 

Figure 6: BAPD Levels of Federal Employees and Contractor Workers 
Compared with Fluctuations in Workload Indicators, Fiscal Years 2005- 
2010: 

Figure 7: Proportion of PBGC's Total Budget Consisting of Contract 
Spending, Fiscal Year 2010: 

Figure 8: PBGC's Process for Awarding Contracts: 

Figure 9: Increase in Percentage of Performance-Based Contract Awards, 
Fiscal Years 2008-2010: 

Abbreviations: 

BAPD: Benefits Administration and Payment Department: 

BPIT: Budget and Planning Integration Team: 

CID: Corporate Investment Department: 

COTR: Contracting Officer Technical Representative: 

DISC: Department of Insurance Supervision and Compliance: 

ERISA: Employee Retirement Income Security Act: 

FAIR Act: Federal Activities Inventory Reform Act of 1998: 

FAR: Federal Acquisition Regulation: 

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

FTE: full-time equivalent: 

IG: Office of Inspector General: 

IT: information technology: 

OIT: Office of Information Technology: 

OMB: Office of Management and Budget: 

OPM: Office of Personnel Management: 

PBGC: Pension Benefit Guaranty Corporation: 

PBSA: performance-based service acquisition: 

SOP: standard operating procedures: 

TEP: Technical Evaluation Panel: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

June 29, 2011: 

The Honorable Charles E. Grassley: 
Ranking Member: 
Committee on the Judiciary: 
United States Senate: 

Dear Senator Grassley: 

As a government corporation established under the Employee Retirement 
Income Security Act of 1974 (ERISA),[Footnote 1] the Pension Benefit 
Guaranty Corporation (PBGC) insures the pension benefits of more than 
44 million American workers and retirees participating in more than 
27,500 private-sector defined benefit Number of Plans.[Footnote 2] 
With the growth in the number of underfunded Number of Plans that PBGC 
has terminated and trusteed over the past 2 decades, PBGC has come to 
rely heavily on contractors to conduct its work--from issuing letters 
to participants of terminated Number of Plans, to calculating benefit 
payments, to managing the investment of its assets. In response to 
concerns about PBGC's preparedness to manage a sudden increase in 
workload following the recent economic downturn and subsequent influx 
of pension plan terminations, you asked us to examine PBGC's 
contracting process. Specifically, we examined (1) how PBGC decides 
between contracting for services and performing the services in house, 
(2) the steps PBGC has taken to strengthen its internal controls over 
the contracting process, and (3) the extent to which PBGC has 
implemented a performance-based approach in its recent contracts. 

To address these topics, we reviewed PBGC's policies, directives, 
procedures, and orders related to workforce management, procurement, 
and contract monitoring (see appendix I); interviewed officials in 
PBGC's Procurement Department, Office of Inspector General (IG), 
Budget Department, and four main program departments; and reviewed 
Office of Management and Budget (OMB) guidance and federal 
regulations, including relevant portions of the governmentwide Federal 
Acquisition Regulation (FAR).[Footnote 3] We reviewed GAO and IG 
reports on these topics and obtained information on the steps taken by 
PBGC in response to past recommendations (see appendix II). To 
identify recent trends in contracting, we analyzed data from the 
Federal Procurement Data System-Next Generation (FPDS-NG) about PBGC's 
use of various contract types and methods, including performance-based 
contracting.[Footnote 4] We also obtained examples of recent changes 
to PBGC's contracting processes by reviewing a small judgmental sample 
of eight recent contracts: two contracts for ongoing activities within 
each of the four main program departments that were selected on the 
basis of award amount, award date, type of services, location where 
services are provided, and continuity of contractors between award 
cycles (see appendix III).[Footnote 5] 

We conducted this performance audit between December 2009 and June 
2011 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 the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Background: 

PBGC was created as a self-financing, nonprofit, wholly owned 
government corporation under ERISA to protect the retirement income of 
workers with private-sector defined benefit Number of Plans[Footnote 
6]--that is, Number of Plans that promise a set benefit amount upon 
retirement to vested employees typically based on a formula.[Footnote 
7] PBGC administers two separate insurance programs for these pension 
Number of Plans: a single-employer program and a multiemployer 
program.[Footnote 8] The single-employer program is the larger of the 
two, and as of fiscal year 2010 covered about 34 million participants 
in just over 26,000 Number of Plans. The multiemployer program covered 
over 10 million participants in about 1,500 collectively bargained 
Number of Plans that are maintained by two or more unrelated 
employers. If the sponsor of a single-employer plan meets the 
statutory requirements for financial distress and the plan does not 
have sufficient assets to pay all promised (vested accrued) benefits 
that have become due, the plan will be terminated and PBGC will likely 
become the plan's trustee, assuming responsibility for paying benefits 
to participants, up to certain limits specified under statute in ERISA 
and related regulations.[Footnote 9] If the sponsors of a 
multiemployer pension plan are unable to pay all promised benefits 
that have become due, PBGC will provide financial assistance to the 
plan, usually a loan, so that retirees can receive the guaranteed 
portion of their benefits, but PBGC does not assume trusteeship of the 
plan.[Footnote 10] 

PBGC's Director, who is appointed by the President and subject to 
Senate confirmation, is responsible for managing the agency's daily 
operations.[Footnote 11] A three-member Board of Directors, consisting 
of the Secretaries of the Departments of Commerce, Labor, and the 
Treasury, is charged with providing policy direction and oversight of 
PBGC's finances and operations.[Footnote 12] PBGC is self financed 
through insurance premiums set by Congress and paid by companies that 
sponsor defined benefit Number of Plans, the assets of underfunded 
single-employer Number of Plans terminated and trusteed by PBGC, 
recoveries from companies formerly responsible for those Number of 
Plans, and the returns earned on the investment of these 
funds.[Footnote 13] Thus, PBGC's primary responsibilities are to 
collect premiums from the sponsors of defined benefit Number of Plans, 
monitor the financial status of the Number of Plans it insures, assume 
administration of underfunded single-employer Number of Plans that 
terminate, calculate benefit amounts and make payments to participants 
in those Number of Plans when due, and manage the investment of plan 
assets under its control. 

Previous GAO Reports on PBGC Contracting: 

In our 2001 high-risk update, we included PBGC in a list of examples 
of agencies that were facing human capital challenges, stating: 
"Because the agency did not adequately link its contracting decisions 
to long-term strategic planning, it may not have the cost-effective 
mix of contractor and federal employees needed to meet future workload 
challenges. Further, PBGC employees who monitor contractors lack 
adequate guidance and policies essential to monitoring contractor 
performance."[Footnote 14] Subsequently, we designated PBGC's single- 
employer program as a "high-risk" program in 2003 due to PBGC's net 
deficit, as well as the continuing likelihood of future terminations 
of large, underfunded pension Number of Plans,[Footnote 15] and the 
program has remained on the list with each subsequent update.[Footnote 
16] In 2009, we also designated the multiemployer program as high 
risk.[Footnote 17] Between fiscal years 2008 and 2010, the single-
employer program's deficit grew from $10.7 billion to nearly $22 
billion, and the multiemployer program's deficit grew from $473 
million to just over $1.4 billion.[Footnote 18] We noted in our 
February 2011 high-risk report that PBGC's current strategic planning 
does not adequately incorporate goals in several key management areas, 
including goals to determine the optimal mix of contract and federal 
workers.[Footnote 19] We reported that PBGC could take steps--such as 
including procurement decision making in its corporate-level strategic 
planning--to strengthen strategic management of its contractor 
workforce to better manage the challenges of its unstable financial 
condition and increasing workload. 

We have also issued a number of reports on ways to improve contracting 
practices by federal agencies governmentwide, and by PBGC in 
particular. For example, in 2005, we published Framework for Assessing 
the Acquisition Function at Federal Agencies in response to federal 
agencies' increasing reliance on contractors to perform their missions 
and the systemic weaknesses identified in key areas of contracting by 
us, IGs, and other accountability organizations[Footnote 20] (see 
appendix I). With respect to PBGC in particular, in September 2000, we 
reported on a variety of challenges facing its contracting activities, 
including that the agency did not adequately link decisions to 
contract for services to longer-term strategic planning 
considerations.[Footnote 21] We recommended that PBGC develop a 
strategic approach to contracting by conducting a review of its future 
human capital needs and to link contracting decisions to PBGC's long-
term strategic plan. More recently, in 2008, we reported that while 
PBGC had taken steps to improve its acquisition infrastructure, most 
of the agency's contracts still lacked performance incentives and 
methods to hold contractors accountable.[Footnote 22] We recommended 
that PBGC revise its strategic plan to reflect the importance of 
contracting. 

PBGC's Organizational Structure: 

PBGC is organized into different program and administrative 
departments that are responsible for different aspects of its pension 
plan insurance programs, including the termination of defined benefit 
Number of Plans and administration of plan benefits, and other 
internal functions such as legal services, financial operations, and 
procurement. Four program departments account for most contract 
expenditures at PBGC--the Benefits Administration and Payment 
Department (BAPD), the Corporate Investment Department (CID), the 
Department of Insurance Supervision and Compliance (DISC), and the 
Office of Information Technology (OIT) (see figure 1). 

Figure 1: Percentage and Amount of PBGC's Contract Spending By Four 
Main Program Departments, Fiscal Year 2010: 

[Refer to PDF for image: pie-chart] 

BAPD: $104 million; 30%; 
CID: $59 million; 17%; 
DISC: $44 million; 13%; 
OIT: $46 million; 13%; 
Other departments: $88 million; 26%. 

Source: GAO analysis of PBGC data. 

[End of figure] 

Other departments provide support services for the program 
departments. For example, PBGC's Procurement Department manages all 
contract award activities for the agency. Only contracting officers in 
the Procurement Department may sign and award contracts on behalf of 
PBGC. The program departments develop requests for the purchase of 
goods and services needed to accomplish their objectives, which they 
submit to the Procurement Department to initiate the contracting 
process. In addition, PBGC's Budget and Organization Performance 
Department (Budget Department) manages the formulation and execution 
of the PBGC budget and establishes and implements policies, 
regulations, and guidelines related to organizational performance. 
According to the Budget Director, when PBGC departments submit their 
annual budget requests, the Budget Department identifies any changes 
in contract service requirements and workforce requests to inform its 
budget recommendation to PBGC executive management. 

PBGC's Workload: 

PBGC's workload has increased in the last 20 years as the cumulative 
number of Number of Plans terminated and trusteed, number of 
participants eligible for or receiving benefits in those Number of 
Plans, and amount and complexity of plan assets taken over by PBGC 
have grown. As of fiscal year 2010, PBGC had terminated and trusteed a 
total of 4,150 underfunded pension Number of Plans[Footnote 23] (see 
figure 2). Following the economic downturn, during the combined 2009 
and 2010 fiscal years, a total of 301 underfunded single-employer 
Number of Plans were trusteed by PBGC. By comparison, during the 
combined 2007 and 2008 fiscal years, only 189 underfunded single-
employer Number of Plans were trusteed. In addition, during fiscal 
years 2009 and 2010, PBGC provided assistance to 93 multiemployer 
pension Number of Plans, up from 78 Number of Plans during the prior 2 
years.[Footnote 24] 

Figure 2: New and Total Cumulative Number of Number of Plans 
Terminated and Trusteed by PBGC (1975-2010): 

[Refer to PDF for image: combined vertical bar and line graph] 

Fiscal year: 1975-79; 
New plans: 586; 
Cumulative plans: 1,217. 

Fiscal year: 1980-84; 
New plans: 621; 
Cumulative plans: 1,754. 

Fiscal year: 1985-89; 
New plans: 537; 
Cumulative plans: 2,448. 

Fiscal year: 1990-94; 
New plans: 694; 
Cumulative plans: 2,891. 

Fiscal year: 1995-99; 
New plans: 443; 
Cumulative plans: 3,594. 

Fiscal year: 2000-2004; 
New plans: 703; 
Cumulative plans: 4,150. 

Fiscal year: 2005-2010; 
New plans: 556. 

Source: GAO analysis of PBGC data. 

Note: Cumulative Number of Plans include 10 multiemployer Number of 
Plans trusteed by PBGC before 1980. PBGC has not trusteed any 
multiemployer Number of Plans since 1980. The Multiemployer Pension 
Plan Amendments Act of 1980 changed PBGC's responsibility from 
trusteeship of troubled multiemployer Number of Plans to providing 
financial assistance (loans) to insolvent Number of Plans. Pub. L. No. 
96-364, 94 Stat. 1208. 

[End of figure] 

As a result of the increase in terminated Number of Plans, the number 
of participants in Number of Plans terminated and trusteed by PBGC has 
also grown over the last decade (see figure 3). By fiscal year 2010, 
PBGC paid or owed benefits to nearly 1.5 million total participants in 
4,150 trusteed Number of Plans.[Footnote 25] During fiscal years 2009 
and 2010 alone, PBGC became responsible for the retirement benefits of 
an additional 300,000 pension plan participants when their underfunded 
Number of Plans were terminated and trusteed. 

Figure 3: New and Total Cumulative Participants in Number of Plans 
Terminated and Trusteed by PBGC, Fiscal Years 2000-2010: 

[Refer to PDF for image: combined vertical bar and line graph] 

Fiscal year: 2000; 
New participants: 27;,000 
Cumulative participants: 541,000. 

Fiscal year: 2001; 
New participants: 91,000; 
Cumulative participants: 624,000. 

Fiscal year: 2002; 
New participants: 179,000; 
Cumulative participants: 783,000. 

Fiscal year: 2003; 
New participants: 198,000; 
Cumulative participants: 934,000. 

Fiscal year: 2004; 
New participants: 139,000; 
Cumulative participants: 1,061,000. 

Fiscal year: 2005; 
New participants: 265,000; 
Cumulative participants: 1,296,000. 

Fiscal year: 2006; 
New participants: 45,000; 
Cumulative participants: 1,271,000. 

Fiscal year: 2007; 
New participants: 58,000; 
Cumulative participants: 1,305,000. 

Fiscal year: 2008; 
New participants: 21,000; 
Cumulative participants: 1,274,000. 

Fiscal year: 2009; 
New participants: 201,000; 
Cumulative participants: 1,476,000. 

Fiscal year: 2010; 
New participants: 99,000; 
Cumulative participants: 1,470,000. 

Source: GAO analysis of PBGC data. 

[End of figure] 

The increase in terminated Number of Plans has also contributed to the 
amount of assets PBGC manages. Total assets managed by PBGC have grown 
from less than $22 billion in fiscal year 2000 to nearly $80 billion 
in fiscal year 2010 (see figure 4). In recent years, PBGC's investment 
portfolio has become more challenging as it now includes complex 
financial instruments and the oversight of additional managers. 

Figure 4: New and Total Cumulative Assets under PBGC Management, 
Fiscal Years 2000-2010: 

[Refer to PDF for image: combined vertical bar and line graph] 

Fiscal year: 2000; 
New PBGC assets acquired from newly terminated plans: $0.3 billion; 
Total PBGC assets: $22 billion. 

Fiscal year: 2001; 
New PBGC assets acquired from newly terminated plans: $2.5 billion; 
Total PBGC assets: $23 billion. 

Fiscal year: 2002; 
New PBGC assets acquired from newly terminated plans: $4.5 billion; 
Total PBGC assets: $26 billion. 

Fiscal year: 2003; 
New PBGC assets acquired from newly terminated plans: $6.9 billion; 
Total PBGC assets: $35 billion. 

Fiscal year: 2004; 
New PBGC assets acquired from newly terminated plans: $2.8 billion; 
Total PBGC assets: $40 billion. 

Fiscal year: 2005; 
New PBGC assets acquired from newly terminated plans: $10.2 billion; 
Total PBGC assets: $58 billion. 

Fiscal year: 2006; 
New PBGC assets acquired from newly terminated plans: $2.3 billion; 
Total PBGC assets: $61 billion. 

Fiscal year: 2007; 
New PBGC assets acquired from newly terminated plans: $1 billion; 
Total PBGC assets: $68 billion. 

Fiscal year: 2008; 
New PBGC assets acquired from newly terminated plans: $0.5 billion; 
Total PBGC assets: $63 billion. 

Fiscal year: 2009; 
New PBGC assets acquired from newly terminated plans: $9.4 billion; 
Total PBGC assets: $70 billion. 

Fiscal year: 2010; 
New PBGC assets acquired from newly terminated plans: $2 billion; 
Total PBGC assets: $79 billion. 

Source: GAO analysis of PBGC data. 

Note: Dollars not adjusted for inflation. 

[End of figure] 

Decisions to Contract Based More on Past Practice than Strategic 
Assessment: 

PBGC has come to rely heavily on contracting to conduct much of the 
core work of the agency, yet PBGC does not make decisions to use 
contractors in accordance with an agency-wide strategic plan or focus. 
Rather, individual departments develop their own rationales for 
contracting, largely based on historical practice rather than on an 
assessment that using contractors would be more advantageous than 
using federal employees to conduct its work. PBGC's long-term, 
extensive reliance on contractors raises concern that the agency may 
be eroding its in house expertise and management control over core 
functional areas. 

Contracting Decisions Not Strategically Managed at the Agency Level: 

In 2005, we issued a framework for assessing federal agencies' 
contracting activities that identified four cornerstones to promote an 
efficient, effective, and accountable acquisition function.[Footnote 
26] One of these cornerstones was "organizational alignment and 
leadership," with "organizational alignment" defined as appropriately 
placing the acquisition function within the agency, having clearly 
defined roles and responsibilities for stakeholders, aligning 
contracting with the agency's mission and needs, and organizing the 
contracting function. Our 2008 report on PBGC's contracting activities 
found that PBGC was falling short in this area. The agency had not 
involved its Procurement Department in helping the agency make 
strategic decisions about contracting early in the process or in 
developing long-term strategic approaches, thus leaving the agency 
less able to effectively identify, analyze, prioritize, and coordinate 
agency-wide acquisition needs. We recommended that PBGC take several 
steps to better incorporate contracting into its strategic planning. 
In our work for this report, we found that while PBGC has taken 
certain steps to improve its acquisition infrastructure, such as 
adding staff to the Procurement Department to help manage and monitor 
contract awards and developing staff training, the agency has not 
fully integrated its contracting function at the corporate level. 
Instead, PBGC has continued to leave contracting decisions to the 
agency's individual program departments. 

In our 2008 report, we recommended that one way PBGC could incorporate 
contracting in its strategic planning would be to include the 
Procurement Department in agency-wide strategic planning and ensure 
that the Procurement Director sits on PBGC's three strategic teams. 
[Footnote 27] The teams, now called "governing bodies," are known as 
the Executive Management Committee, the Budget and Planning 
Integration Team (BPIT), and the Information Technology Investment 
Review Board. These bodies, respectively, review corporate-wide 
programs, projects, and internal policies; approve corporate-wide 
resource allocations and align resources to the agency's strategic 
objectives; and review information technology investments to assure 
alignment with strategic objectives. In response to our 2008 
recommendation, PBGC maintained that the Procurement Director need not 
be a member of the three bodies to be effective, as its Chief 
Management Officer (to whom the Procurement Director reports) 
represents contracting on these teams. Despite including the Chief 
Management Officer in these corporate-wide meetings, however, 
corporate-level strategic planning regarding contracting remains 
limited. Without some way of better integrating contract decision 
making into the corporate-level strategic planning process and 
aligning contract activities with the agency's mission and goals along 
the lines outlined in the four cornerstones, the program departments 
remain responsible for contracting decisions without meaningful top-
level management involvement to identify, analyze, prioritize, and 
coordinate agency-wide contracting needs. 

In addition, the agency has provided guidance to its departments about 
how contracting decisions should be made, but not how to link such 
decisions to agency-wide strategic planning. An August 2009 policy 
memo from the Chief Management Officer to PBGC managers discussed 
whether to use contractors or government employees for 
services.[Footnote 28] This memo provided a list of factors for 
departments to consider when deciding whether or not to use 
contractors, but only one of these factors called on departments to 
evaluate the appropriateness of using contractors. Specifically, 
departments are required to ensure that the contractors would not be 
performing duties that could be considered "inherently governmental 
functions,"[Footnote 29] reflecting a requirement contained in the 
FAR.[Footnote 30] All other factors addressed the limitations on using 
federal employees, such as lack of expertise and full-time equivalents 
(FTE). Moreover, the memo did not include any requirements to ensure 
decisions to use contractors are linked to agency-wide strategic 
planning. 

PBGC also has an agency-wide strategic plan and a human capital 
strategic plan, but neither of these Number of Plans discuss the 
division of labor between federal employees and contractors, or how to 
determine the optimal mix of each type of worker. For example, PBGC's 
Strategic Plan, FY 2011-2016, describes human capital management under 
its goal of effective and efficient stewardship of agency resources, 
but does not reflect the important role contracting plays in achieving 
the agency's mission. Similarly, PBGC's Human Capital Strategic Plan, 
FY 2010-2014, acknowledges the importance of contracting and the 
challenges of balancing the workforce between federal and contract 
workers, but it does not describe how it Number of Plans to achieve 
that balance; rather, it focuses primarily on recruiting, knowledge 
retention, and succession planning for PBGC's federal employees. The 
plan stated that a strategic focus on human capital requires, among 
other things, a balanced workforce, succession Number of Plans for 
potential workforce gaps, and an evaluation of maintaining a 
significant number of contractor workers versus converting those 
positions to permanent staff. The plan noted that "the gaps in tenure 
and the heavy use of contracting staff present unique human capital 
planning challenges in sustaining critical organizational knowledge." 
[Footnote 31] However, the plan did not outline a strategic approach 
to retaining organizational knowledge, address an optimal mix of 
federal versus contract workers, or provide specifics about when and 
how the evaluation would be accomplished. As of May 2011, the proposed 
evaluation of the potential for converting positions from contractors 
to federal employees is under review by the Executive Management 
Committee. The newly hired Chief Management Officer indicated that she 
Number of Plans to study various options regarding the appropriate mix 
of contractor and federal staff necessary to accomplish the agency 
mission, but this study was not yet under way. 

Findings from a recent IG report highlight the need for further action 
to incorporate contracting decision making into the agency's strategic 
planning process. In November 2010, PBGC's IG found the agency's 
strategic planning for workload surges to be inadequate, as it did not 
reflect, among other things, the importance of contractors, even 
though PBGC had concluded informally that it would handle such a surge 
mostly by expanding the contract workforce. The IG recommended that 
the agency develop a workforce strategy tailored to address gaps in 
numbers, deployment, and placement of the workers to be obtained 
through contracts.[Footnote 32] The IG also recommended that the 
workforce strategy should reflect the importance of the contract 
workforce to PBGC and support linkage of staffing and contracting 
decisions at the corporate level with an expanded coordinating role 
for the Procurement Department. In response, PBGC management noted the 
risk of a large influx of pension Number of Plans had decreased from 
early 2009 levels, and, therefore, as an alternative, proposed 
modifying an existing work group to plan for workload surges that 
involve more than just large cases.[Footnote 33] However, the IG has 
continued to express concerns to PBGC management that it is unclear 
how the agency would implement the proposed alternative, and noted 
that as of February 2011, the agency still had not committed to 
specific preplanned solutions for workload-surge events. 

Costs and Benefits of Contracting Not Routinely Weighed by Departments: 

The four PBGC programming departments we reviewed decide individually, 
subject to annual budget approval,[Footnote 34] whether to accomplish 
their work through contractors or federal employees, and their 
rationales for deciding to use contractors vary (see table 1). In 
accordance with PBGC's policy memo about how to decide whether to use 
contractors or government employees for services,[Footnote 35] 
managers are to consider various prescribed factors and submit their 
documented decisions annually to the Procurement Department. One 
decision factor included in this memo is for departments to consider 
if the service can be provided more cost effectively by federal 
employees than by contractors, referring to OMB guidance for 
estimating the costs.[Footnote 36] However, department officials told 
us they do not routinely conduct an evaluation of the costs and 
benefits of performing work through contractors when making 
contracting decisions. Officials from all four of the programming 
departments we reviewed cited the agency's historical practice of 
using contractors to accomplish certain types of work among their 
primary reasons for using contractors. Officials often also cited the 
need to manage workload fluctuations more efficiently, as well as a 
lack of needed expertise among federal employees. 

Table 1: Rationales and Extent of Contracting in PBGC's Four Main 
Program Departments, Fiscal Year 2010: 

BAPD: 

Department/responsibilities: BAPD manages the termination process for 
defined benefit Number of Plans, provides participant services 
(including calculation and payment of benefits) for PBGC-trusteed 
Number of Plans, provides actuarial support for PBGC, and carries out 
PBGC's responsibilities under settlement agreements. When a plan is 
terminated, BAPD values plan assets and liabilities, and collects, 
evaluates, and performs participant and plan financial audits, making 
decisions on participant benefit entitlements and plan worth; 
Primary rationales for contracting work: 
* Workload fluctuation--need to manage varying numbers of newly 
trusteed Number of Plans and participants; 
* Historical practice; 
Number of contractor workers: 834; 
Number of contracts and amount of contract obligations: 107 contracts; 
$104 million. 

CID: 

Department/responsibilities: Established as a separate unit in 2009, 
CID provides investment management services for Number of Plans 
trusteed by PBGC and for PBGC assets. Prior to 2009, these functions 
were performed within FOD, which established and continues to maintain 
PBGC's financial and accounting systems and financial management 
policy, among other responsibilities; 
Primary rationales for contracting work: 
* Workload fluctuation--need to handle the agency's investment 
portfolio; 
* PBGC policy prohibiting federal employees from managing investments; 
* Lack of staff expertise--staff needed to manage investment 
portfolios; 
* Historical practice; 
Number of contractor workers: Not applicable[A]; 
Number of contracts and amount of contract obligations: 19 contracts; 
$59 million. 

DISC: 

Department/responsibilities: DISC monitors the corporate events and 
transactions of defined benefit plan sponsors (employers) and provides 
financial and actuarial analyses for PBGC to mitigate risks to the 
insurance program and increase overall funding levels for Number of 
Plans. In coordination with the Office of Chief Counsel, DISC 
determines and pursues recoveries of unpaid employer contributions, 
makes recommendations to the Executive Director concerning the filing 
of liens, and makes recommendations to the Internal Revenue Service 
for granting waivers of minimum funding standards for insured Number 
of Plans; 
Primary rationales for contracting work: 
* Workload fluctuation--need to track the status of varying numbers of 
troubled pension Number of Plans potentially requiring termination and 
trusteeship by PBGC; 
* Lack of staff expertise--staff needed to design and develop 
proprietary actuarial software; 
* Historical practice; 
Number of contractor workers: Not applicable[A]; 
Number of contracts and amount of contract obligations: 26 contracts; 
$44 million. 

OIT: 

Department/responsibilities: OIT provides information technology (IT) 
and electronic communications services and support to PBGC; 
Number of Plans for, directs, and coordinates the allocation of IT 
resources, support, and related activities; delivers IT business 
solutions driven by customer requirements; operates, maintains, and 
safeguards PBGC business and infrastructure systems; and oversees the 
acquisition of IT resources for PBGC; 
Primary rationales for contracting work: 
* Lack of staff expertise--difficulty keeping skilled software 
engineers on staff; 
* Historical practice; 
Number of contractor workers: 190[B] (estimated); 
Number of contracts and amount of contract obligations: 200 contracts; 
$46 million. 

Source: GAO analysis of PBGC fiscal year 2010 data as of May 2011. 

[A] PBGC officials noted that some program departments, such as CID 
and DISC, do not routinely track the number of contractor workers 
providing services for most of their contracts because the fees paid 
to the contractors are fixed--that is, not based on staffing hours or 
number of staff required to support deliverables. These departments 
only count contractor workers providing services on site. For fiscal 
year 2010, CID reported having 2 on-site contractor workers, and DISC 
reported having 18 on-site contractor workers. 

[B] PBGC officials estimated that OIT had 360 contractor workers in 
fiscal year 2010, with 190 contractor workers accounted for within OIT 
and 170 distributed over four other PBGC departments. 

[End of table] 

Using Contractors Based on Historical Practice: 

Officials in all four main program departments we interviewed included 
historical practice as one of the primary reasons they use 
contractors. According to agency officials, even though PBGC requires 
its departments to evaluate the costs and benefits of continuing to 
perform the work through contractors each time a contract expires, 
some types of work have been performed by contractors for 10 years or 
more with no assessment as to whether the use of contractors is the 
most economical and effective way of getting the work done. For 
example, BAPD has awarded contracts for its work administering Number 
of Plans through its field offices since 1978, shortly after the 
agency was established. When PBGC first began taking over large, 
underfunded pension Number of Plans, it awarded contracts to either 
companies that sponsored a plan or former employees of those companies 
to continue administering the plan, including determining benefits and 
processing payments for plan participants. This practice allowed PBGC 
to take advantage of these workers' familiarity with the pension 
Number of Plans being terminated and geographic proximity to the 
affected participants in those Number of Plans. In 1981, PBGC expanded 
the role of such contracts to cover pension Number of Plans of other 
sponsors and established a small number of field offices under 
contract.[Footnote 37] Over time, the link to plan expertise and 
geographic proximity has essentially disappeared. Now, Number of Plans 
are assigned to a field office based on the size of a plan and the 
capacity of an individual office to take on a plan of that particular 
size, with prior expertise in a particular industry and geography only 
occasionally entering into the decision. 

In response to recommendations from our 2000 report, PBGC commissioned 
the National Academy of Public Administration to study PBGC's future 
workforce needs, with the goal of using the study's results to better 
link staffing and contracting decisions to PBGC's long-term strategic 
planning process.[Footnote 38] This study found that, prior to 2001, 
PBGC had conducted some cost-benefit analyses on the use of 
contractors that found it was more economical to obtain services 
through contractors than to hire federal employees for its field 
offices. However, PBGC officials interviewed for our current study 
could not identify any more recent analyses that compared the benefits 
and costs of contractors versus federal employees performing work in 
the field offices, or for any other contracts we examined. 

Using Contractors to Manage Workload Fluctuations: 

Although the need to manage workload fluctuation and plan complexity 
is often cited by PBGC officials as the key reason for needing to use 
contractors, we found that agency-wide, the number and percentage of 
contractor staff appears to exceed the amount needed to address such 
fluctuations. PBGC has used contractors to perform a substantial 
portion of its core tasks beyond the numbers of workers needed to 
address marginal increases and decreases in key workload indicators, 
including the number of participants, number of Number of Plans, and 
assets[Footnote 39] (see figure 5). 

Figure 5: Levels of Federal Employees and Contractor Workers Compared 
with Fluctuations in Various Workload Indicators, Fiscal Years 2000- 
2010: 

[Refer to PDF for image: combined vertical bar and line graph] 

Fiscal year: 2000; 
Federal employees: 763; 
Contractor workers: 791; 
Plans: 2,874; 
Participants: 541,000; 
Assets: $22 billion. 

Fiscal year: 2001; 
Federal employees: 775; 
Contractor workers: 919; 
Plans: 2,976; 
Participants: 624,000; 
Assets: $23 billion. 

Fiscal year: 2002; 
Federal employees: 773; 
Contractor workers: 1,248; 
Plans: 3,132; 
Participants: 783,000; 
Assets: $26 billion. 

Fiscal year: 2003; 
Federal employees: 754; 
Contractor workers: 1,342; 
Plans: 3,287; 
Participants: 934,000; 
Assets: $35 billion. 

Fiscal year: 2004; 
Federal employees: 776; 
Contractor workers: 1,331; 
Plans: 3,479; 
Participants: 1,061,000; 
Assets: $40 billion. 

Fiscal year: 2005; 
Federal employees: 784; 
Contractor workers: 1,639; 
Plans: 3,585; 
Participants: 1,296,000; 
Assets: $58 billion. 

Fiscal year: 2006; 
Federal employees: 822; 
Contractor workers: 1,768; 
Plans: 3,683; 
Participants: 1,271,000; 
Assets: $61 billion. 

Fiscal year: 2007; 
Federal employees: 811; 
Contractor workers: 1,502; 
Plans: 3,793; 
Participants: 1,305,000; 
Assets: $68 billion. 

Fiscal year: 2008; 
Federal employees: 880; 
Contractor workers: 1,420; 
Plans: 3,860; 
Participants: 1,274,000; 
Assets: $63 billion. 

Fiscal year: 2009; 
Federal employees: 905; 
Contractor workers: 1,365; 
Plans: 4,003; 
Participants: 1,476,000; 
Assets: $70 billion. 

Fiscal year: 2010; 
Federal employees: 955; 
Contractor workers: 1,439; 
Plans: 4,150; 
Participants: 1,470,000; 
Assets: $79 billion. 

Workload indicators: 

Participants: 300,000; 
Plans: 1,000; 
Assets: $20 billion. 

Participants: 600,000; 
Plans: 2,000; 
Assets: $40 billion. 

Participants: 900,000; 
Plans: 3,000; 
Assets: $60 billion. 

Participants: 1,500,000; 
Plans: 5,000; 
Assets: $80 billion. 

Source: GAO analysis of PBGC annual workforce data and cumulative data 
for terminated and trusteed plans, participants in those plans, and 
assets under management. 

[End of figure] 

Among the four main program departments we reviewed, BAPD, DISC, and 
CID officials all cited the need to manage workload fluctuations as 
the primary reason they use contractors to supplement their 
departments' federal workforce. Officials particularly emphasized the 
speed with which the contractor workforce can be reduced at times of 
lower workload. In determining the need for contractors, BAPD and DISC 
officials said they consider both incoming work and work in process in 
their decisions. For example, BAPD's workload is tied to the number of 
Number of Plans being trusteed and the number of participants in those 
Number of Plans. In DISC, the workload is tied to the number of 
troubled pension Number of Plans potentially requiring termination and 
trusteeship by PBGC.[Footnote 40] In CID, the workload is tied to the 
volume and complexity of assets from Number of Plans that PBGC has 
terminated and trusteed, as well as a number of other factors. 

While it may be true that the amount of contractor workers can more 
easily rise and fall with the workload than if all PBGC workers were 
federal employees, it appears that the extent of contracting is 
greater than the amount needed to respond to such fluctuation. For 
example, in the case of BAPD, between fiscal years 2005 and 2010, the 
number of terminated Number of Plans increased steadily, between 2 and 
4 percent each year, and the number of participants in newly 
terminated Number of Plans increased between 2 and 20 percent of total 
cumulative participants. Meanwhile, over that same period, the 
proportion of contractor workers ranged between 72 and 80 percent of 
BAPD's total workforce (see figure 6). 

Figure 6: BAPD Levels of Federal Employees and Contractor Workers 
Compared with Fluctuations in Workload Indicators, Fiscal Years 2005- 
2010: 

[Refer to PDF for image: combined vertical bar and line graph] 

Fiscal year: 2005; 
BAPD FTE positions: 291; 
BAPD contractor workers: 1,071; 
Plans: 3,585; 
Participants: 1,296,000. 

Fiscal year: 2006; 
BAPD FTE positions: 286; 
BAPD contractor workers: 1,140; 
Plans: 3,683; 
Participants: 1,271,000. 

Fiscal year: 2007; 
BAPD FTE positions: 277; 
BAPD contractor workers: 933; 
Plans: 3,793; 
Participants: 1,305,000. 

Fiscal year: 2008; 
BAPD FTE positions: 285; 
BAPD contractor workers: 887; 
Plans: 3,860; 
Participants: 1,274,000. 

Fiscal year: 2009; 
BAPD FTE positions: 313; 
BAPD contractor workers: 820; 
Plans: 4,003; 
Participants: 1,476,000. 

Fiscal year: 2010; 
BAPD FTE positions: 298; 
BAPD contractor workers: 856; 
Plans: 4,150; 
Participants: 1,470,000. 

Workload indicators: 

Participants: 300,000; 
Plans: 1,000. 

Participants: 600,000; 
Plans: 2,000. 

Participants: 900,000; 
Plans: 3,000. 

Participants: 1,200,000; 
Plans: 4,000. 

Source: GAO analysis of PBGC data. 

[End of figure] 

Using Contractors to Provide Needed Expertise: 

Officials from OIT, CID, and DISC also cited the need to acquire 
specific expertise as a primary reason for contracting. Officials from 
these departments said contractors are used particularly for certain 
types of IT, actuarial, legal, and investment work. For example, a 
senior OIT official told us it is general agency practice to have 
software design and development work done by contractors, as it is 
difficult to keep skilled software engineers on staff as government 
employees. In fiscal year 2010, OIT had 337 contractor workers 
providing software engineering services. Similarly, CID officials said 
they lack the in house expertise to manage investment funds due to the 
complexity of investment instruments. CID officials also told us that 
since PBGC's inception, the agency has required the use of outside 
investment managers under contract to invest PBGC assets as a 
safeguard to prevent government employees from affecting private 
companies and the market, consistent with a 1977 OMB memorandum, and 
this has been reaffirmed by the PBGC Board of Directors and investment 
policy statements ever since.[Footnote 41] CID officials stated that, 
as a government corporation, PBGC may not have to comply with the OMB 
memo, but that its principles--including the use of outside investment 
managers--have been the foundation of PBGC's investment management 
approach for the agency's entire history. 

Using Contractors Due to Administrative Constraints on Hiring: 

Beyond the rationales discussed above, officials across the four 
departments we reviewed noted that contracting is necessary, to some 
extent, because there are simply not enough federal employees to 
perform the work, mostly due to a cap on the number of federal 
employees that PBGC can have at any one time. The cap is established 
each year as the result of PBGC's annual budget process where the 
agency requests from OMB a specific number of FTE staff. PBGC is then 
allotted a certain number of FTEs, which are then assigned to each 
department based on program needs. 

According to a PBGC Budget Department official, the agency assigns 
FTEs to each department by program activity, then the departments 
decide how to fill FTEs based on the extent to which activities are 
comprised of inherently or noninherently governmental functions, and 
the ability of their existing federal staff to perform the work. The 
official told us that, as of October 2010, the number of on-board 
FTEs--the actual number of positions filled by federal employees--was 
above the agency's FTE allotment for fiscal year 2010 (955 filled 
versus 941 allotted.) 

Another temporary disincentive to hiring federal employees mentioned 
by some departmental officials was the imposition of additional review 
procedures on PBGC's hiring process during a 12-month period between 
June 2008 and June 2009.[Footnote 42] The Office of Personnel 
Management (OPM) imposed these procedures after an evaluation found 
severe deficiencies in PBGC's competitive recruitment process. 
[Footnote 43] After PBGC officials worked with OPM staff to review all 
phases of the process, including auditing selection certificates 
before extending job offers to candidates, the additional review 
procedures were lifted. 

Responding to the available allotment of FTEs and the lifting of OPM's 
added review procedures, over the past 2 years, some departments have 
taken action to hire more federal employees to assume work previously 
performed by contractors. For example, BAPD officials told us that 
since fiscal year 2009, BAPD had taken steps to add new FTEs, hiring 
12 new federal employees during this period. In addition, between 
fiscal years 2008 and 2010, BAPD requested a conversion of contractor 
dollars for 20 FTEs. BAPD officials told us that this shift helped 
fill the need for additional in-house knowledge of contracts in one of 
its divisions. In addition, DISC officials told us that federal 
employees could carry out the tasks performed by a particular 
actuarial contractor if sufficient FTEs were available to the 
department, but it had not requested any new FTEs in fiscal years 2009 
or 2010. 

Long-Term Extensive Reliance on Contracting May Be Putting PBGC at 
Risk: 

PBGC's history of heavy reliance on contractors to carry out its 
operations, achieve its goals, and meet its agency mission, goes back 
to the mid-1980s. At that time, when faced with a significant influx 
of large pension plan failures, PBGC chose to award contracts for 
services rather than seek additional federal employees. Over time, 
PBGC continued contracting to address its expanding workload and 
quickly obtain necessary services. As of fiscal year 2010, nearly 80 
percent of its total budget was spent on contracts (see figure 7). 
Over time, such heavy reliance on contractors may be placing PBGC at 
risk of diminishing management control over contract activities and 
decreasing the level of expertise among its federal employees. 

Figure 7: Proportion of PBGC's Total Budget Consisting of Contract 
Spending, Fiscal Year 2010: 

[Refer to PDF for image: horizontal bar graph] 

Total PBGC budget: $464 million; 
$341 million: spent on contracts; 
$123 million: noncontract spending. 

Source: GAO analysis of PBGC data. 

[End of figure] 

Potential Impacts on Management Control and Institutional Knowledge: 

In 2006, we convened a forum of government, industry, and academic 
participants to discuss federal acquisition challenges and 
opportunities.[Footnote 44] Subsequently, in 2007, the congressionally 
mandated Acquisition Advisory Panel issued its report based on its 
review of laws, regulations, and governmentwide acquisition policies 
regarding various aspects of contracting.[Footnote 45] Both of these 
groups noted how 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. In addition, some of our previous reports on contracting 
across various federal agencies--including the Department of Homeland 
Security[Footnote 46] and the Department of Defense[Footnote 47]-- 
advised that long-term extensive reliance on contractors can diminish 
management control over contract activities.[Footnote 48] In guidance 
to agencies about how to better manage a workforce comprised of both 
contractors and federal employees, OMB also noted that agencies often 
lack adequate information on how contractors are deployed throughout 
their organizations, and that as a result, agencies risk 
underutilizing the full potential of their total workforce--both 
contract and federal.[Footnote 49] 

In light of PBGC's extensive reliance on contractors, the agency may 
be at risk for the same types of problems mentioned earlier, 
particularly a lack of adequate management control and contract 
oversight--problems which could impede PBGC's ability to manage 
increasing workloads, contractor costs, and program outcomes. As 
illustrated in figure 7, almost three-fourths of PBGC's fiscal year 
2010 budget was allocated to contracting. Moreover, our analysis of 
PBGC's workforce data shows that based on the number of contractor 
workers being monitored, nearly two-thirds of its fiscal year 2010 
workforce was comprised of contractor workers. But the actual total of 
contractor workers performing services is even higher, as these data 
do not include contractor workers providing services to the agency 
under some types of contracts. For example, in CID, services for 
managing assets are provided to PBGC under fixed price contracts by a 
team of investment managers supported by workers in numerous 
functional areas within the firms that were awarded contracts. The 
contracts for services managing assets apply a percentage to the 
investment portfolio value to determine fees paid to the contractor--
the contractor is not required to provide the staffing hours or number 
of staff tasked to support deliverables. 

Additionally, PBGC's extensive reliance on its contractor workforce 
may be placing the agency at risk of not building institutional 
knowledge among its federal workforce in those areas in which the 
agency has come to rely on contractors. This is of greatest concern 
for work that is central to the mission of the agency--work that if 
contractors are relied on too extensively, could result in the agency 
essentially ceding its core functions to its contractor workforce. 
Without taking action to address the potential effects of its 
extensive reliance on contracting, PBGC risks being unprepared to meet 
future workload changes amid ever-increasing financial liabilities. 
The agency's contractor workforce performs an array of services, 
including core functions such as processing terminations of defined 
benefit Number of Plans, providing actuarial services, managing asset 
investments, and conducting IT-related activities. 

Although PBGC has not acknowledged or taken steps to address the 
potential risks of eroding expertise at an agency-wide level, such 
risks have been noted at the department level. For example, OIT 
officials told us that in fiscal year 2007, it conducted a risk 
assessment that identified certain deficiencies, including a 
competency gap between contractor and federal employees. To build and 
retain institutional knowledge and expertise, and to provide better 
guidance to and oversight of contractors, OIT made a concerted effort 
to shift some funds from contractors to hiring additional federal 
employees. As a result, between fiscal years 2007 and 2010, OIT 
increased the number of federal employees from 84 to 104, and 
decreased its contractor workforce from 390 to 360 contractor workers. 
[Footnote 50] However, other departments we interviewed had not 
conducted similar risk assessments or identified similar concerns, nor 
has a risk assessment been conducted on an agency-wide basis. 

Also, PGBC has not undertaken an analysis at an agency-wide level to 
better understand how services being performed under contract are 
supporting its mission and operations and whether contractor workforce 
skills are being used in an appropriate manner in coordination with 
the skills of federal employees. At the department level, some units 
within PBGC have examined the costs of using contractors to provide 
certain functions compared with federal employees. As a result, PBGC 
officials told us that between fiscal years 2007 and 2010, nine 
departments submitted requests to convert contract dollars for hiring 
102 federal employees to do the same work. OMB approved 73 new FTEs 
during this period, due in part to PBGC lagging in bringing new 
employees on board. However, without accurate information on the type 
and extent of work being performed by contractors at agency-wide 
level, including how contract work is being distributed by function 
and location across the entire agency, PBGC risks diminishing its 
management control over the contracting decision-making process. 

Governmentwide Initiative to Better Manage Decisions to Contract: 

In 2009, Congress enacted a new federal provision requiring most 
agencies to give greater consideration to using federal employees to 
perform functions currently performed by contractors (referred to as 
"insourcing").[Footnote 51] OMB subsequently issued guidance on how to 
manage decisions to contract and help mitigate the effects of 
extensive reliance on contracting.[Footnote 52] Steps outlined in this 
guidance included (1) developing more strategic acquisition 
strategies, (2) conducting a pilot human capital analysis of one 
program where the agency had concerns about the extent of reliance on 
contractors, and (3) conducting a service contract inventory to allow 
better understanding of how contracted resources are distributed and 
to identify contracts that may involve inherently governmental 
functions. As noted in a November 2010 OMB memo,[Footnote 53] the 
inventory is a tool for assisting an agency in better understanding 
how services awarded under contract are being used to support its 
mission and operations, and whether the contractors' skills are being 
utilized in an appropriate manner. An agency manager can gain insight 
into where, and the extent to which, contractors are being used to 
perform activities by analyzing how contractor resources are 
distributed by function and location across the agency and within its 
components. This insight is especially important for components with 
contracts whose performance may involve critical functions or core 
work that is closely associated with inherently governmental 
functions. Moreover, while the fiscal year 2010 inventories conducted 
by federal agencies were not required to include the number of 
contractor workers or the role the services play in achieving agency 
objectives, such information is required for the fiscal year 2011 
inventories. As part of the 2011 inventory process, covered agencies 
are required to determine if contractors are being used in an 
appropriate and effective manner and if the mix of federal employees 
and contractors in the agency is effectively balanced, with priority 
consideration given to professional and management services and IT 
support services.[Footnote 54] 

As a government corporation, PBGC is not subject to the new insourcing 
requirements and is not required to comply with OMB's guidance on 
conducting a service contract inventory.[Footnote 55] Nevertheless, 
conducting such an inventory, as outlined in the guidance, could offer 
PBGC a useful tool for enhancing the agency's contracting performance 
by strengthening its management controls and building institutional 
knowledge, which is essential to identifying and mitigating the 
effects and potential risks of its extensive reliance on contracting. 
With respect to the service contract inventories in particular, OMB 
has noted that when used as part of a balanced workforce analysis, 
such inventories can help identify whether an agency has an 
overreliance on contracting in certain areas that would require 
increased contract management or rebalancing to ensure the agency is 
effectively managing risks and obtaining the best results for the 
taxpayer.[Footnote 56] 

Steps Taken to Strengthen Its Contracting Process: 

Over the past 2 years, PBGC has adopted several new tools and 
practices to strengthen its contracting process, including developing 
a comprehensive procurement standard operating procedures manual and 
various reporting tools to help managers and staff make well-informed 
acquisition decisions and to improve contract oversight. In addition, 
PBGC has increased its use of competitively awarded contracts and 
fixed price contracts. In our view, use of competitively awarded 
contracts and these contract types has been shown to improve the 
contracting process by limiting the cost and performance risk assumed 
by the government.[Footnote 57] 

New Structure and Practices for Awarding and Overseeing Contracts: 

Over the past decade, both we and PBGC's IG have made a number of 
recommendations to strengthen the agency's contracting practices. In 
our 2000 report, we identified underlying management weaknesses 
regarding PBGC's overall approach to selecting and managing 
contractors, as well as day-to-day contract administration activities, 
and we recommended that PBGC take action to address specific 
operational and procedural weaknesses identified in our review. In our 
2008 report, we found that while PBGC had made efforts to improve its 
acquisition infrastructure, it had not developed a strategic approach 
to its contracting processes as envisioned in our 2000 report and we 
recommended that PBGC improve its contract management and develop 
practices to help ensure the accountability of Procurement Department 
staff. Since 2008, in response to these recommendations as well as 
various recommendations from its IG,[Footnote 58] PBGC's Procurement 
Department has made several structural changes, and has adopted new 
tools and practices to strengthen its contract award and oversight 
processes. 

Structural Changes in the Procurement Department: 

In 2009, the Procurement Department was reorganized into separate 
divisions: an Acquisition Division responsible for the awarding of 
contracts for goods and services and a Policy and Contract 
Administration Division responsible for the management of awarded 
contracts. The Acquisition Division is charged with ensuring the 
integrity of the pre-award contracting process, which includes 
acquisition planning, proposal evaluation, and contract award. The 
Policy and Contract Administration Division is charged with ensuring 
that all aspects of the contract are fulfilled after award, including 
oversight of the contractor's performance, contract modifications, 
proper payment of contractor billings, and contract termination or 
closeout when work is completed. One official told us that before the 
reorganization, a single person would be responsible for both the pre- 
award and postaward activities on each contract, and that postaward 
activity often received less attention as a result. PBGC officials 
told us the level of contract oversight being provided by PBGC staff 
has improved now that administrative contracting officers are focusing 
exclusively on postaward activity and have dispensed with other 
duties. However, PBGC officials were unable to provide us with any 
measurements or quantitative evidence of this improvement. 

In addition, the Procurement Department secured approximately $1.8 
million in the agency's fiscal year 2009 and 2010 budgets for the 
hiring of additional procurement staff and to make awards to several 
support contractors. Procurement Department staffing has increased 
from 14 in February 2008 to 17 as of March 2011, with 1 additional 
position still being recruited. Budgetary resources were also provided 
for contractor support to assist with completing contract closeout 
work, reviewing postaward contract files, and operating the agency's 
contract writing system.[Footnote 59] Funding has also been provided 
to hire a contractor to conduct a capital asset study that may be used 
to support a future funding request for a new contract writing system 
or the resources to make improvements to the existing one. 

Changes to the Contract Award Process: 

There are several steps for awarding contracts at PBGC that can be 
categorized in terms of four key stages: acquisition planning, 
proposal solicitation, proposal evaluation, and contract award (see 
figure 8). The basic structure of PBGC's contracting process is based 
on the FAR, PBGC's own regulations, and guidance from OMB. As a 
government corporation with unique responsibilities, PBGC is not 
required to comply with many of the laws, federal regulations, 
policies, and procedures that may apply to other federal agencies. For 
example, while PBGC's contracting activities for certain functions, 
such as the insurer of defined benefit Number of Plans, may be subject 
to the FAR, PBGC contracting activities related to its role as trustee 
of terminated Number of Plans are not bound by the FAR.[Footnote 60] 
As a matter of policy, however, PBGC has decided to abide voluntarily 
by the FAR in procuring all goods and services. 

Figure 8: PBGC's Process for Awarding Contracts: 

[Refer to PDF for image: process illustration] 

Conduct acquisition planning: 
* Conduct market research; 
* Prepare statement of work; 
* Perform independent government cost estimate; 
* Define source-selection criteria; 
* Identify Technical Evaluation Panel (TEP) members; 
* Prepare requisition; 
* Submit requisition to Procurement Department (via Comprizon). 

Solicit proposal: 
* Synopsize requirement; 
* Review requisition package; 
* Conduct small business review; 
* Prepare solicitation; 
* Conduct legal review of solicitation; 
* Incorporate legal review recommendations; 
* Issue solicitation; 
* Prepare proposals (vendor); 
* Respond to vendor questions; 
* Hold TEP briefing/training; 
* Receive proposals. 

Evaluate the proposals: 
* Perform cost/price analysis; 
* Prepare TEP report; 
* Determine competitive range; 
* Notify vendors eliminated from competitive range; 
* Prepare prenegotiation strategy; 
* Conduct discussions; 
* Prepare revised proposals (vendor); 
* Receive revised proposals; 
* Perform cost/price analysis of revised proposals; 
* Prepare final TEP report/trade-off analysis; 
* Prepare source-selection decision memo; 
* Issue source-selection decision. 

Award the contract: 
* Prepare contract file; 
* Conduct peer review; 
* Conduct legal review of contract; 
* Incorporate legal review recommendations; 
* Issue unsuccessful offeror letters; 
* Enter data into FPDS; 
* Award contract; 
* Distribute contract. 

Source: GAO analysis of PBGC documents. 

[End of figure] 

Since 2008, the Procurement Department has developed several new tools 
and practices designed to improve PBGC's contracting process by 
fostering a closer working relationship with other PBGC departments. 
These new measures include requiring departments to submit advance 
procurement planning documents with realistic contract award 
milestones, share information on the progress of contract awards, 
provide estimates of acquisition planning needed for future contract 
awards, and adhere to a new standard operating procedures (SOP) manual 
for procurement so that contracting and agency staff carry out their 
responsibilities correctly (see table 2). 

Table 2: New Tools and Practices for PBGC's Contract Award Process: 

Tool/practice: Advance Procurement Planning document; 
This document describes the desired good or service, the method of 
procurement, proposed contract type, and contracting process milestone 
dates for each new procurement with an estimated value greater than 
$100,000; 
Recent change: 
As of October 2009, began requiring; 
* more realistic contracting process milestone dates, and; 
* approval signatures of both procurement and program representatives; 
Since February 2011, began instructing departments to; 
* include an attachment to the APP documenting the decision to use a 
contractor to provide the needed services as required to be prepared 
by PBGC Directive GA 15-4, last updated in 2009. 

Tool/practice: Procurement Department SOP manual; 
These procedures implement the FAR and other statutory requirements to 
guide procurement activities and establish basic internal controls 
over PBGC's contracting process; 
Recent change: First drafted in March 2008 and updated in December 
2009, the SOP establishes; 
* a uniform procedure for all PBGC acquisitions; 
* assurances that FAR requirements and other control objectives are 
met, and; 
* provisions that address compliance with applicable federal 
requirements, including policies that pertain to ethical conduct and 
requirements that all solicitations be clearly written and promote 
fair competition. 

Tool/practice: Procurement Status chart; 
This chart lists all PBGC department requests for contract award 
support, tracks the progress of each request through the contracting 
process, and reports on any delays that may impact the planned award 
date; 
Recent change: In use since February 2009, this chart is updated 
weekly and provides; 
* transparency into the current status of all pending contract awards, 
and; 
* notice of any delays to a planned contract award and whether a PGBC 
department needs to address them. 

Tool/practice: Expiring Contracts chart; 
This chart lists all active contracts and tracks when they are 
expiring as well as the options available to ensure there are no 
unplanned interruptions in services provided; 
Recent change: In use since April 2009, this chart is updated monthly 
and provides; 
* advance warning of expiring contracts, and; 
* sufficient lead times so that necessary actions can be taken for the 
awarding of a new contract or exercise of an option year to avoid a 
lapse in service. 

Source: GAO analysis of PBGC data. 

[End of table] 

PBGC staff have reacted positively to these new measures. For example, 
several contracting officers told us that requiring advance 
procurement Number of Plans to include realistic contracting process 
milestones was helpful and provided adequate lead time for the 
contract awards. The IG found the new SOP to be a useful "first step" 
toward improving procurement effectiveness, but maintained that PBGC 
leadership needs to develop ways to measure compliance with the new 
procedures and make corrections or adjustments. Also, the Procurement 
Director told us that before the Procurement Status chart was in 
place, the program departments complained they had little insight into 
how their contracting needs were being supported or whether the 
expected contract award dates would be met. With the Expiring 
Contracts chart, these two tools function as part of an integrated 
procurement data system that provides information to inform 
acquisition decisions and management. In our review of the eight 
contract files,[Footnote 61] we found that those contracts and related 
task orders awarded after the updated December 2009 SOP was issued 
showed a pattern of better compliance with documentation requirements 
and other controls and internal procedures compared with contract 
awards made before the updated SOP (see table 3). 

Table 3: Pattern of Increased Compliance Postadoption of the December 
2009 Updated Procedures: 

Total awards reviewed; 
Number of awards made before issuance of updated SOP: 5 contracts, 3 
task orders; Total: 8; 
Number of awards made after issuance of updated SOP: 3 contracts, 5 
task orders; Total: 8. 

Advance procurement planning documented in contract file; 
Number of awards made before issuance of updated SOP: 
Yes: 3; 
No: 5; 
Not applicable: 0; 
Number of awards made after issuance of updated SOP: 
Yes: 7; 
No: 1; 
Not applicable: 0; 

Justification for use of cost reimbursement and labor hour contracts 
documented in contract file; 
Number of awards made before issuance of updated SOP: 
Yes: 2; 
No: 2; 
Not applicable: 4; 
Number of awards made after issuance of updated SOP: 
Yes: 1; 
No: 3; 
Not applicable: 4. 

Evaluations of proposals and award decisions documented in contract 
file; 
Number of awards made before issuance of updated SOP: 
Yes: 3; 
No: 5; 
Not applicable: 0; 
Number of awards made after issuance of updated SOP: 
Yes: 7; 
No: 7; 
Not applicable: 0. 

Justification for the use of option years documented in contract file; 
Number of awards made before issuance of updated SOP: 
Yes: 3; 
No: 2; 
Not applicable: 3; 
Number of awards made after issuance of updated SOP: 
Yes: 4; 
No: 1; 
Not applicable: 3. 

Source: GAO analysis of PBGC data. 

[End of table] 

Changes in Policies Regarding Contract Oversight: 

In response to the IG's and our recommendations, the Procurement 
Department has also adopted several new tools and practices to 
strengthen contract oversight, including issuance of a new directive 
in December 2010 establishing uniform policies and procedures for the 
selection, appointment, training and oversight of contracting officer 
technical representatives (COTR) (see table 4).[Footnote 62] A COTR at 
PBGC is the person the contracting officer relies upon to monitor a 
contractor's work, ensuring it meets all contract requirements before 
approving the payment of contractor billings. Before issuance of the 
December 2010 COTR directive, PBGC had no specific policy for 
contracting officers to ensure COTRs performed their responsibilities 
and sufficiently documented their actions in a COTR file. Some 
contracting officers told us this resulted in inconsistent 
documentation and minimal reviews of COTR files, leaving questions 
about whether the COTR was assuring that all contract requirements 
were met. One contracting officer explained that before the COTR 
directive, COTR status reports were submitted only on an ad hoc basis. 
Another contracting officer said the new directive was already having 
a positive effect because it had resulted in more communication 
between procurement staff and COTRs. 

Table 4: New Tools and Practices for PBGC's Contract Oversight: 

Tool/practice: Directive Number: PM 25-5: Selection, Appointment, 
Training and Management of Contracting Officer Technical 
Representatives (COTRs) and Task Monitors (TMs); 
Establishes uniform policies and procedures for the selection, 
appointment, training, and management of COTRs; 
Recent change: Issued in December 2010, it requires: 
* all COTRs to be Federal Acquisition Certification-COTR certified; 
* COTR performance objectives to be included in Number of Plans to 
appraise employee performance; 
* COTRs to submit a quarterly status report to the contracting officer 
for each assigned contract, and; 
* annual reviews of COTR records to determine compliance with this 
directive and other requirements. 

Tool/practice: New "Education and Experience Qualifications" contract 
clause and related changes to the COTR appointment letter; 
To be inserted in all future contracts where personnel qualifications 
are specified in terms of minimum education and/or experience 
qualifications; 
Recent change: Instituted in July 2009, these changes require: 
* contractors to provide personnel who meet or exceed the minimum 
qualifications under the contract; 
* contractors to keep a record of the education and/or training 
credentials for staff assigned to the contract; 
* COTRs to document their review of the contractor's compliance with 
this contract clause and report any instances of noncompliance to the 
contracting officer; 
* the removal of contractor staff who do not meet the minimum 
qualifications upon request by PBGC, and; 
* the contracting officer to determine whether the price or cost of 
work performed by contractor staff should be reduced for those who do 
not meet the personnel qualifications called for in the contract. 

Tool/practice: PBGC Guidance on Required COTR Employee Performance 
Objectives; 
Provides specific instructions for the inclusion of a detailed COTR 
performance objective and related performance standards in fiscal year 
2011 performance appraisal Number of Plans; 
Recent change: Issued in November 2010, it calls for: 
* all COTRs to be held accountable for specific requirements 
associated with their responsibilities; 
* all Number of Plans to appraise the performance of COTR staff to 
include the performance objective developed for the effective 
management of PBGC contracts, and; 
* all COTRs to be evaluated in accordance with this performance 
standard, which should have a minimum weight of 15 percent of the 
employee's total rating. 

Source: GAO analysis of PBGC data. 

[End of table] 

PBGC also has established more rigorous certification and training 
requirements for its COTRs. The December 2010 COTR directive requires 
COTRs to be properly certified at the time of appointment, or within 6 
months if a waiver is granted. Certification requires 40 hours of 
relevant training from a structured program that meets OMB 
requirements for a newly appointed COTR and a minimum of 40 additional 
hours of job-related continuous learning every 2 years that is job 
related. Previously, the requirement at PBGC was completion of COTR 
refresher training every 3 years. Since June 2009, the Procurement 
Department has placed a greater emphasis on COTR training by 
sponsoring "Acquisition Excellence" workshops, covering such topics as 
the new COTR directive, acquisition planning, and use of the 
contractor performance reporting system. The Procurement Director told 
us that the Procurement Department has a COTR nomination process in 
place to determine whether individuals have completed the required 
COTR training before being appointed, and that the COTRs' on-going 
training is monitored through the annual COTR file review process 
which is conducted by a contractor. Our evaluation of the COTR file 
review documents provided by the Procurement Director showed that the 
contractor had completed 54 COTR file reviews as of May 2011, 
identifying 47 instances of lack of adequate documentation of the 
COTR's certification or completion of the continuous learning needed 
to maintain this certification. In these instances, the Procurement 
Department sent written notification of these deficiencies to the 
COTRs, their immediate supervisors, and the contracting officers. The 
letter indicated that immediate corrective action was required to meet 
training and certification requirements and that the COTR was to 
notify the contracting officer within 30 days of the action taken to 
address any deficiency. 

New requirements to strengthen postaward contract oversight of 
contractor staff qualifications have also been adopted in response to 
a PBGC IG recommendation. In a September 2009 report, the IG 
recommended PBGC implement controls and procedures to ensure that 
required experience is verified and documented in personnel files for 
all contractor workers prior to their assignment to a PBGC contract. 
[Footnote 63] In response, PBGC has added an "Education and Experience 
Qualifications" clause to all contracts specifying contractor 
personnel qualifications in terms of education and/or 
experience,[Footnote 64] and has added a requirement for the COTR to 
review compliance with this new contract clause to the COTR 
appointment letter. Three of the eight contract files we reviewed were 
labor hour contracts where contractors must meet specific 
qualifications,[Footnote 65] and we found that the COTRs were 
conducting the compliance reviews as required in their COTR 
appointment letter, for all three. However, in one case, we found the 
"Education and Experience Qualifications" clause missing from the 
contract. When we brought this to the Procurement Department's 
attention, officials acknowledged this had been omitted in error and 
told us the required clause would be added to the contract in a future 
modification. 

In addition, the IG found in a December 2007 report there was no 
formal system for measuring the COTR's performance of contract 
monitoring duties and recommended PBGC officials collaborate on 
developing a COTR performance goal and objectives.[Footnote 66] In 
response, PBGC's Procurement and Human Resources Departments worked 
together to develop new employee performance standards to more clearly 
establish the COTR's responsibilities associated with effectively 
managing PBGC contracts. Beginning in fiscal year 2011, PBGC is 
requiring all staff who have been assigned COTR duties to have these 
performance standards added to their performance evaluations. 

Increased Use of Competitive and Fixed Price Contracts: 

When determining how to acquire needed goods and services, federal 
agencies--including PBGC--must determine whether it is appropriate to 
use competitive or noncompetitive procedures to award contracts, and 
the type of pricing arrangement, such as fixed price or cost 
reimbursement.[Footnote 67] These decisions are the principal means 
that PBGC has for allocating cost and performance risk between the 
agency and its contractors. With respect to various agencies' 
contracting governmentwide, we have reported that the awarding of 
contracts without the benefits of competition or with contract types 
chosen without adequately considering the risks involved are unsound 
procurement and management practices.[Footnote 68] Conversely, the use 
of sound procurement methods improves the integrity of the contracting 
process. 

More Competitive Contract Awards: 

Contracting officers are required, with limited exceptions, to utilize 
full and open competition in soliciting offers and awarding federal 
government contracts.[Footnote 69] Competitive procedures for awarding 
contracts call for the issuance of a solicitation or request for 
proposals, the receipt of competing proposals, and the subsequent 
evaluation of these proposals against evaluation factors stated in the 
solicitation to be used as the basis for the award decision. In 
contrast, a noncompetitive contract award is made without permitting 
all prospective firms to submit competing proposals generally under an 
exception to full and open competition allowed by the FAR.[Footnote 
70] Use of competitive contracting procedures thus encourages firms to 
offer their best proposals when competing for work in response to a 
solicitation issued by PBGC, thereby leveling the playing field for 
competitors and potentially reducing costs and protecting the 
interests of the agency. In our analysis of FPDS-NG data on PBGC 
contracting, we found that between fiscal years 2008 and 2010, 
[Footnote 71] the number of new contracts awarded competitively 
increased from 51 percent to 67 percent of all new contracts, and that 
the share of total contract obligations made on competitive contracts 
increased from 70 percent to 83 percent.[Footnote 72] 

Another issue related to competition is the exercise of options to 
continue services under an existing contract for a stated period of 
time. Options can be a useful tool to realize efficiencies in the 
contracting process, but they should be used appropriately. The FAR 
requires contracting officers to justify, in writing, the quantities 
or terms under the option, and the notification period for exercising 
the option among other things, and include this justification document 
in the contract file. Before exercising the option, the FAR also 
requires contracting officers to make a written determination that the 
exercise of the option is in accordance with the option's terms and 
relevant FAR provisions.[Footnote 73] However, we found that the 
required justifications were missing for the award of option periods 
for two contracts and a task order awarded under a third contract that 
we reviewed. Without these justifications in the contract files, it is 
more challenging to determine the contracting officer's rationale for 
inclusion of option periods and be assured that it is in the 
government's best interest to extend the contract, rather than seek 
new competition for the additional work. 

More Fixed Price Contract Awards: 

In addition, agencies can choose from a number of different pricing 
arrangements or contract types to acquire goods and services from 
contractors. For example, contract types can be grouped into two broad 
categories: fixed price contracts, where the government agrees to pay 
a set price for goods or services regardless of the actual cost to the 
contractor; and cost reimbursement contracts, where the government 
agrees to pay all allowable costs incurred by the contractor 
regardless of whether the deliverable or service is completed. 
[Footnote 74] As with competition, use of fixed price contracts is 
another tool that can help ensure government contracts are structured 
to "minimize risk and maximize value" for the taxpayer.[Footnote 75] 
In many cases, fixed price contracts are well suited for achieving 
this goal because they provide the contractor with the greatest 
incentive for efficient and economical performance. In contrast, cost 
reimbursement and labor hour contracts leave the agency exposed to a 
higher risk for cost overruns due to the allocation of cost risk 
between the government and the contractor.[Footnote 76] 

Over the past decade, PBGC's Procurement Department has made efforts 
to increase the use of fixed price contracting. In 2000, we reported 
that about 60 percent of PBGC's active contracts involved labor hour 
pricing and recommended that, where appropriate, PBGC should utilize 
more fixed price contracts. Furthermore, the PBGC IG told us that the 
agency has been utilizing some contractors on a labor hour basis for 
many years and should have a good understanding and sense of how the 
work is being done so they could structure the statement of work 
differently to use a fixed price contract or something less risky than 
the current labor hour approach. Our analysis of FPDS-NG data found 
that PBGC has made some progress recently in its use of fixed price 
contracts. PBGC's use of fixed price contracts increased from just 
under 85 percent of all new contracts in fiscal year 2008 to almost 91 
percent in fiscal year 2010. In addition, the share of total contract 
obligations on new fixed price contracts at PBGC was 69 percent in 
fiscal year 2010, which is an increase from 50 percent in fiscal year 
2008. 

PBGC's procurement officials provided examples of its efforts to 
encourage departments to increase use of fixed price contracts over 
labor hour contracts. In 2010, the Procurement Department disagreed 
with a BAPD request to award a new labor hour contract for recurring 
actuarial services. Although a new 5-year labor hour contract was 
awarded for these services, BAPD officials also agreed to have a 
consultant conduct a study to determine if the services could be 
obtained more effectively under another contract type. The study, 
delivered to PBGC in December 2010, recommended that PBGC make 
incremental improvements to the current contracting approach and 
transition over time to a fixed price contract for these services if 
certain criteria such as accurate cost estimates and successful 
implementation of a performance-based approach are met.[Footnote 77] 
BAPD has agreed to comply. In another example, the Human Resources 
Department initially proposed a labor hour contract for support 
services claiming that the labor hours needed to perform the services 
could not be precisely estimated. Procurement Department officials 
disagreed, suggesting that the labor hours could be estimated based on 
hours regularly worked by the government employee who formerly 
performed the tasks. The Human Resources Department adopted this 
suggestion and switched to a 3-year fixed price contract for these 
services. 

In addition, one of the contracts included in our file review involved 
a contract that was part of a follow-on requirement for all of BAPD's 
field benefit administration contracts that were awarded in 2009. 
These contracts had been identified by a PBGC internal study and an IG 
report as areas where PBGC should give stronger consideration to using 
fixed price contracts. All together, these contracts were valued at 
more than $150 million and had contract lengths of several years 
before they were expected to be competed for again. The IG noted in a 
2004 report that these contracts had been repeatedly awarded as labor 
hour contracts since the early 1980s when the current field benefit 
administration structure was created. Similarly, an internal study 
conducted by PBGC in 2010 found that most statements of work for these 
contracts had been brought forward over the years with only slight 
updates in scope. Consistent with the more recent OMB guidance, the 
study recommended that data on the performance of contracts be 
accumulated and summarized to document the level of service performed 
over time and examined closely to allow PBGC to possibly restructure 
its statements of work (or objectives) to accommodate different 
contract types. 

To promote the use of fixed price contracting governmentwide, OMB 
issued guidance in October 2009 recommending that agencies collect 
historical data on costs incurred on cost reimbursement, time and 
materials, and labor hour contracts, and use the data in structuring 
future contracts under certain circumstances to a fixed price approach 
instead.[Footnote 78] However, in our limited review of contract 
files, we found little evidence that PBGC officials had made efforts 
to use experiences gained on past contracts to change contract type 
when recompeting. Three of the eight contracts we reviewed were labor 
hour contracts.[Footnote 79] In each of these files, we found 
justifications for the use of labor hour pricing, but we found no 
evidence of efforts by PBGC to apply past experience to inform future 
cost estimates and transition the work performed under these contracts 
to a fixed price basis. 

Among the cost reimbursement contracts we reviewed, we found that 
decisions regarding use of this contract type were not always 
documented, as required by the FAR.[Footnote 80] Under the FAR, a cost 
reimbursement contract is suitable only when circumstances do not 
allow the requirement to be sufficiently defined to allow for a fixed 
price contract or the uncertainties involved in contract performance 
do not permit costs to be estimated with sufficient accuracy to use a 
fixed price contract.[Footnote 81] However, in one contract file, we 
found no documentation to support the decision to use cost 
reimbursement pricing for four of the contract's cost reimbursement 
task orders. Without such documentation, the contract file is 
incomplete and the reasoning used to support PBGC's contracting 
process is not clearly justified. 

Increased Use of a Performance-Based Approach to Contracting, but 
Links to Agency Goals Still Lacking: 

To achieve greater cost savings and better outcomes when agencies 
acquire services, Congress and the executive branch have encouraged 
greater use of performance-based contracting. The use of performance- 
based contracts to acquire services offers a number of potential 
benefits. Performance-based contracts can encourage contractors to be 
innovative and to find cost-effective ways of delivering services. 
Performance-based contracting also helps improve the agency's internal 
controls over the contracting process by using performance metrics to 
assess contractor performance during contract monitoring. However, 
challenges to this method of contracting have been encountered 
governmentwide. Since 2008, PBGC has made progress in increasing its 
use of this method of contracting, and has implemented new guidance 
and training to help expand its use further. In addition, PBGC has 
increased its incorporation of performance metrics across various 
types of contracts. However, such metrics--whether part of a 
performance-based or other type of contract--are not required to be 
linked to PBGC's mission and goals. Such linkage is important to 
ensuring contract work is well integrated into PBGC's strategic plan, 
just as PBGC does with work performed in house. 

Challenges Faced in Efforts to Increase Use of Performance-Based 
Service Contracts: 

In 2008, we reported that PBGC had begun awarding more contracts using 
the performance-based contracting method as a means to achieve better 
contract outcomes. Since then, FPDS-NG data show that use of the 
performance-based method of contracting has continued to increase--
from 7 of 378 new contracts in fiscal year 2008, to 49 of 404 new 
contracts in fiscal year 2010 (see figure 9). But, this contracting 
method is still used in less than 15 percent of new contracts. 

Figure 9: Increase in Percentage of Performance-Based Contract Awards, 
Fiscal Years 2008-2010: 

[Refer to PDF for image: vertical bar graph] 

Fiscal year: 2008; 
Percentage of all new contracts: 2%; 7 of 378. 

Fiscal year: 2009; 
Percentage of all new contracts: 10%; 38 of 384. 

Fiscal year: 2010; 
Percentage of all new contracts: 12%; 49 of 404. 

Source: GAO analysis of FPDS data. 

[End of figure] 

The performance-based contracting method has been acknowledged as 
creating challenges for contract oversight and monitoring efforts at 
agencies governmentwide, which may be deterring its use. In our 2008 
report, we noted that PBGC would likely face technical challenges 
similar to other agencies that have attempted to increase their use of 
this contracting method, such as deciding which contracts are 
appropriate for a performance-based approach and which outcomes to 
measure and emphasize. Other common barriers included fear of change, 
lack of understanding of performance-based contracting methods, and 
fear of loss of control over the contracting process. More recently, a 
May 2010 Procurement Department internal briefing report stated that 
performance-based contracting was still considered a technical 
challenge because of the contract oversight and monitoring efforts 
required. 

In addition, PBGC may not be adequately prepared across all 
departments to increase use of performance-based contracting due to 
management challenges. A recent study conducted by a consulting firm 
for PBGC, issued in December 2010, found that BAPD's workforce lacked 
the technical and cultural readiness needed to implement performance- 
based contracting. It stated that BAPD--the program department 
responsible for generating contracts for administering benefit 
services performed at field offices--lacked a performance management 
framework that would enable it to effectively link the quality of 
contract outcomes with organizational performance and to establish 
appropriate incentive mechanisms.[Footnote 82] 

In 2007, PBGC officials stated that they had initiated an effort to 
utilize performance-based contracting for the field offices, but had 
to abandon the effort for reasons unrelated to the attempt to use this 
contracting method. This solicitation process, which spanned more than 
2 years, involved numerous staff from various departments, and was one 
of the largest procurement efforts ever undertaken by PBGC. Had it 
been successful, it would have been a major step forward in the 
agency's use of performance-based contracting at its field offices. 
However, as BAPD later reported, the strategy to issue a single 
request for proposals to encompass the work previously performed under 
all eight contracts created too much complexity when trying to 
evaluate the proposals. The solicitation was canceled in August 2008 
and BAPD abandoned the effort to use performance-based contracting for 
these contracts. 

New Guidance and Training on Performance-Based Contracting Being 
Implemented: 

In our 2008 report, we recommended that PBGC provide increased 
guidance and training for staff on the use of the performance-based 
contracting method. Since then, PBGC has issued detailed guidance in 
its SOP, and has offered training focused specifically on this 
contracting method to staff, managers, and acquisition-related 
workforce. 

Detailed Guidance Provided in the 2009 Updated Procedures: 

The Procurement Department's SOP provides detailed guidance on the 
various elements of performance-based contracting, based on the FAR. 
[Footnote 83] It cites the FAR's policy for acquiring services using 
performance-based contracting methods as the preferred method for 
acquiring services,[Footnote 84] provides definitions of terms 
associated with performance-based service acquisitions (PBSA), and 
outlines PBSA requirements to be included in the performance work 
statement (see table 5). 

Table 5: Performance-Based Contracting Requirements Described in the 
2009 Updated Procedures: 

The performance work statement defines the required outcomes for: 

Performance requirements: 
Performance requirements define what must be accomplished in terms of 
measurable, mission-related outcomes. Avoid statements of how the work 
must be performed. 

Performance standards: 
Performance standards define the level of service required to meet 
mission objectives--how well the work must be performed to satisfy 
requirements. 

Performance measures: 
Performance measures describe the methods used to assess contractor 
performance. 

Incentives and remedies (optional): 
Incentives and remedies are used to motivate contractors to achieve 
optimal levels of performance. 

Source: PBGC's 2009 SOP. 

[End of table] 

According to the FAR, once an agency determines a contract should have 
a written acquisition plan, that plan must describe the strategies for 
implementing performance-based acquisition methods or must provide the 
rationale for not using those methods.[Footnote 85] PBGC has 
designated all contracts with an estimated value greater than $100,000 
as those required to have written Number of Plans. However, PBGC 
allows departments to choose whether or not to use the performance-
based method of contracting, and the SOP does not mention the FAR 
requirement to document the rationale for not using this acquisition 
method, even for large service contracts. Only when departments choose 
to use this method does the SOP provide detailed instructions on what 
is entailed. For example, the SOP instructs users that each 
performance requirement should have a performance standard and 
provides guidelines on the development of the summary of performance 
requirements, which is to document the desired outcomes, performance 
objectives, and performance standards developed for a performance-
based contract. The ultimate goal is to describe the requirement in a 
way that allows a potential contractor to understand fully what is 
necessary to meet these standards, resulting in better performance by 
focusing on results rather than process. 

In addition, the SOP includes other key mechanisms that are critical 
to performance-based contracting. For example, the SOP provides 
information to assist users in developing the Quality Assurance 
Surveillance Plan, which specifies the surveillance schedule, methods, 
and performance metrics acquisition staff can use to assess the 
outcomes of contractor performance. The SOP provides commonly used 
assessment methods as well as guidelines on how to determine the most 
appropriate method for assessment. The SOP stresses that past 
performance is an important element of every evaluation and contract 
award. It also discusses remedies for reductions in fees when services 
rendered do not meet requirements of the contract. The SOP also 
includes a section on contract incentives for performance-based 
contracts and describes the flexibility of using different criteria to 
award fees to reflect changes in mission priorities. Incentives 
encourage contractors to develop innovative cost-effective methods of 
performance while maintaining the quality of services provided. 
Through proper monitoring, the agency can take steps to correct 
performance that does not meet requirements or to negotiate changes to 
award fees to reflect changes in the agency's mission and objectives. 

Additional Training on Performance-Based Contracting Under Way: 

To help address the barriers to using the performance-based 
contracting method that stem from fear of change, lack of 
understanding of performance-based contracting methods, or fear of 
loss of control over the contracting process, our 2008 report 
recommended that PBGC provide comprehensive training on performance-
based contracting for PBGC's Procurement Department staff, managers, 
and acquisition-related workforce. As of 2010, PBGC noted that the 
PBGC Training Institute provided a wide range of procurement-related 
training for Procurement Department personnel and COTRs, including 
training on performance-based contracting. In addition, Procurement 
Department officials indicated the department had incorporated 
training on performance-based contracting in its Acquisition 
Excellence Workshops. In October 2009, PBGC contracted with an outside 
educational firm to provide this training. As of May 2011, 
implementation of this training was still under way. 

Linkage Between Performance Metrics and Agency Goals Still Lacking: 

In addition to increasing its use of performance-based contracts, we 
found that PBGC is using performance metrics--one of the key elements 
of a PBSA--in various types of contracts as an alternative way of 
expanding its performance-based approach to contracting. In 2008, we 
reported that most of PBGC's contracts at that time lacked performance 
incentives and methods to hold contractors accountable, and we 
recommended that PBGC ensure that contracts measure performance in 
terms of outcomes. Since then, we found that PBGC has taken steps to 
increase its use of performance metrics, but that links to PBGC's 
strategic goals and objectives are still lacking. 

We have long stressed the need for agencies to use performance metrics 
as an internal management control and to link metrics to agency goals 
as a way to ensure proper stewardship and accountability for 
government resources and for achieving effective and efficient program 
results.[Footnote 86] Our tool for internal controls describes 
standards for agencies to establish and monitor performance metrics 
and indicators by taking specific actions to assess data on 
performance outcomes, including comparing data against planned goals 
and ensuring performance factors being analyzed are linked to agency 
mission and objectives. Management-control activities such as use of 
performance measures to evaluate outcomes are applicable to all 
services that an agency uses to meet its goals and objectives. 

PBGC has implemented a management control concerning the use of 
performance measures linked to agency mission and goals with respect 
to its in house workforce, but not with respect to its contract work. 
PBGC's Procurement Department's SOP does not discuss the use of 
performance metrics in all contract types, only for performance-based 
service acquisitions, and--even with respect to performance-based 
contracts--the SOP does not require that the performance metrics be 
designed to link to specific agency goals. Nevertheless, we found some 
efforts in the program departments to increase the use of performance 
metrics. PBGC officials from two departments we spoke with noted that 
they had been increasing their use of performance metrics in various 
contract types, and we found evidence of this in our review of 
selected contract files. For example, our contract review included 
several cost plus fixed fee task orders that OIT awarded under a 
contract with multiple awards using a PBSA approach, and they all 
included specific performance metrics to assess contractor 
performance. We also reviewed two CID awards for firm fixed price 
contracts for management services for asset investment that did not 
use a PBSA method of contracting, but the contracts nevertheless had 
incorporated metrics for monitoring contractor performance against the 
agency's investment benchmarks based on the contractors' monthly 
performance reports. In addition, we reviewed a BAPD labor hour 
contract for services at a field office that did not use the PBSA 
method, but still included a matrix of performance metrics that had 
not been included in the previous contract for these services. The 
matrix provided specific descriptions of desired activity outcomes, 
required services, acceptable quality levels, quantified and 
measurable performance standards, and monitoring methods to assess 
contractor performance, and BAPD officials report quarterly on how the 
performance metrics are being met. However, these performance metrics 
were not linked to specific measurable agency objectives and goals. 

In contrast, PBGC's policies do require linkage between performance 
metrics and agency goals for work performed by its in-house federal 
workforce. For example, one goal listed in PBGC's Human Capital 
Strategic Plan, FY 2010-2014 is to develop processes and procedures 
based on OPM's Performance Appraisal Assessment Tool to ensure that 
individual employee performance and accountability are linked to 
PBGC's strategic goals.[Footnote 87] Similarly, PBGC's most recent 5-
year strategic plan includes performance metrics and targets which are 
used to assess the performance of its federal workforce toward 
achieving its strategic goals. While performance metrics developed to 
measure the performance of in-house employees would not be appropriate 
for measuring the performance of individual contractor workers--as 
they work for the contractor, not directly for PBGC--these performance 
metrics may be useful in helping to develop metrics for contract work 
at the contract level, especially in areas where comparable work is 
performed both in house and under contract. For example, in interviews 
with PBGC officials, we learned that in-house DISC actuaries perform 
the same work that is performed by the contractor, and that to a 
certain extent, both internal and external actuaries have their work 
measured using the same standard metrics.[Footnote 88] However, 
contracts we reviewed for work performed by external actuaries do not 
link performance metrics to specific agency goals. 

Conclusions: 

With nearly three-fourths of its budget allocated to contracts, PBGC 
relies heavily on contracting to achieve its corporate mission. We 
believe that PBGC needs to be more deliberative in making decisions to 
contract. Although we made previous recommendations in both 2000 and 
2008 that PBGC include contract decision making in its strategic 
planning, PBGC continues to consider contracting as a supporting 
function to fulfilling its mission rather than a key element of its 
corporate-level strategic planning. To this end, we reiterate our 
prior recommendations in this area, which have yet to be implemented. 
In addition, extensive use of contractors over time may diminish 
PBGC's management control over contracts and staff expertise with 
respect to critical mission activities. After steadily expanding its 
use of contracts over the past 20 years, with only occasional limited 
efforts to examine the cost effectiveness of this development, a 
reassessment of PBGC's rationale for this arrangement is overdue. 

Once the decision to contract has been made, we applaud PBGC's many 
recent changes to the contracting process which are intended to 
improve integrity, but implementation of these new measures is still 
under way and required documentation that would assure full 
implementation is lacking in some cases. Without full implementation 
of these new controls, PBGC may not be making well-informed decisions 
for efficient contract management, which ultimately place the agency's 
assets at greater risk. PBGC has also made progress in implementing a 
performance-based approach to contracting. However, additional action 
is needed to fully implement past recommendations regarding 
incorporation of performance metrics linked to PBGC's mission and 
goals. Unless contract metrics for work performance are linked to 
agency objectives--as PBGC currently does with its in-house workforce--
the effectiveness of the contractors' work in assisting PBGC to 
achieve its mission and goals is diminished. Federal regulations call 
on agencies to ensure that performance-based contracting methods are 
used to the maximum extent practicable, and we believe PBGC could be 
doing more to encourage greater use of this method of contracting and 
to include performance metrics linked to the agency's mission and 
strategic goals in its major service contracts with an estimated value 
over $100,000. 

Recommendations for Executive Action: 

To improve PBGC's performance in an environment of heavy contractor 
use, further efforts are needed to better integrate contract decision 
making and contract management into PBGC's agency-level strategic 
planning process. While recognizing that OMB guidance is not binding 
for PBGC, to assist PBGC in reassessing its extensive reliance on 
contracting, we recommend that the Director of PBGC implement OMB 
guidance that calls on agencies to: 

* develop a service contract inventory, by function and location 
across the agency and within its departments, to identify the extent 
of its current reliance on contractors and enable a balanced workforce 
analysis. At a minimum, such reviews should capture the total dollar 
amount of service contract spending by function and the role services 
play in achieving agency objectives. Consistent with OMB guidance, 
PBGC should give priority consideration to functions that require 
increased management attention due to heightened risk of workforce 
imbalance; and: 

* undertake a risk analysis in areas identified as heavily reliant on 
contractors, including an evaluation of the costs and benefits of 
decisions to award work to contractors in such areas. 

In addition, to encourage expanded use of performance-based 
contracting with performance metrics linked to the agency's mission 
and goals, we recommend that the Director of PBGC: 

* ensure that the rationale for not using a performance-based service 
acquisition approach is documented, consistent with the FAR; and: 

* ensure that the performance metrics for major service contracts are 
linked to specific corporate strategic goals to the maximum extent 
practicable. 

Agency Comments and Our Evaluation: 

We obtained written comments on a draft of this report from PBGC, 
which are reproduced in appendix VI. PBGC also provided technical 
comments, which are incorporated into the report where appropriate. In 
addition, we provided a copy of the draft report to the Department of 
Labor for its comments. The Department of Labor did not provide 
written comments on our findings. 

In response to our draft report, PBGC generally concurred with our 
recommendations and outlined actions the agency has under way or 
Number of Plans to take to address each topic of concern. With respect 
to the first recommendation, PBGC agreed and noted that the agency 
will use internal systems for contracting to develop a sufficiently 
detailed service contract inventory to enable a better workforce 
analysis and assist in potentially rebalancing its workforce as 
challenges arise. With respect to the second recommendation, PBGC 
agreed and commented that it generally considers risks and costs in 
making contract decisions, but that it would conduct a more formal 
process as it relates to staffing and contracting. With respect to the 
third recommendation, PBGC agreed and noted that the agency has added 
a line to its advance procurement planning form to raise the issue in 
a deliberative manner prior to soliciting the contract. Finally, with 
respect to the fourth recommendation, PBGC agreed and noted that its 
management team understands the relationship between contracting and 
achieving the agency's goals, and is comfortable with documenting that 
relationship. We are pleased to learn of the steps under way to 
address our recommendations and strengthen PBGC's contracting process. 
Further monitoring will be required to ensure that the results of the 
service contract inventory and risk and cost analyses are used 
effectively to better integrate decisions on contracting and 
management of contracts into PBGC's agency-level strategic planning 
process, and that the linkage between performance metrics for major 
service contracts to specific corporate strategic goals provides 
greater assurance that contract work is used effectively to support 
PBGC's mission. 

As agreed with your staff, we will send copies of this report to the 
Secretary of Labor, the Director of PBGC, and other interested 
parties. In addition, the report will be available at no charge on the 
GAO Web site at [hyperlink, http://www.gao.gov]. If you or your staff 
has any questions concerning this report, please contact Barbara 
Bovbjerg at (202) 512-7215 or bovbjergb@gao.gov, or William Woods at 
(202) 512-4841 or woodsw@gao.gov. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff members who made key contributions to 
this report are listed in appendix VII. 

Sincerely yours, 

Signed by: 

Barbara D. Bovbjerg: 
Managing Director, Education, Workforce, and Income Security Issues: 

Signed by: 

William T. Woods: 
Director, Acquisition and Sourcing Management Issues: 

[End of section] 

Appendix I: Federal Contracting Policies and Guidance Cited in This 
Report: 

Regulation: 

Source: Federal Acquisition Regulation (FAR), 48 C.F.R. ch. 1 (2011); 
Summary: The FAR is the primary regulation for all federal executive 
agencies in their acquisition of supplies and services with 
appropriated funds. The Office of Management and Budget's (OMB) Office 
of Federal Procurement Policy establishes policy guidelines for some 
sections of the FAR, such as the policy for using a performance-based 
approach to service contracting. The FAR: 
* provides contracting policies and procedures for, among other 
things, acquisition planning, and competing, awarding, and monitoring 
contracts; 
* indicates a performance-based approach as the preferred acquisition 
method for services; 
* provides a prohibition on contracting for services that constitute 
inherently governmental functions and offers lists of functions 
considered inherently governmental and functions not considered 
inherently governmental; and; 
* would be supplemented by policy letter, as proposed by Office of 
Federal Procurement Policy, to clarify when outsourcing for services 
is and is not appropriate and what functions are inherently 
governmental and must always be performed by federal employees. 

The President and OMB: 

Source: Presidential Memorandum of March 4, 2009, Government 
Contracting, 74 Fed. Reg. 9,755 (Mar. 6, 2009); 
Summary: Memorandum expressed concern that agencies' excessive 
reliance on contracts creates a risk that poorly designed contracts 
will not meet the needs of the federal government or the interest of 
taxpayers, and: 
* noted that the line between inherently governmental functions--those 
that must be performed by federal employees--and commercial activities 
that may be subject to contract performance--has been blurred; and; 
* directed OMB to lead a series of contracting-related efforts, 
including clarifying when outsourcing for services is and is not 
appropriate. 

Source: OMB Memorandum M-09-25, Improving Government Acquisition (July 
29, 2009); 
Summary: Memorandum described two actions that OMB was imposing, based 
on the Presidential Memorandum of March 4, 2009, that required 
agencies to: 
* review existing contracts and acquisition practices and develop a 
plan to save 7 percent of baseline contract spending by the end of 
fiscal year 2011; and; 
* reduce by 10 percent the share of dollars obligated in fiscal year 
2010 under new contract actions that are awarded with high-risk 
contracting authorities that pose special risks of overspending; 
examples cited included noncompetitive contracts, cost reimbursement 
contracts, and labor hour contracts. 

Source: OMB Memorandum M-09-26, Managing the Multi-Sector Workforce 
(July 29, 2009); 
Summary: Memorandum discussed achieving the best mix of contractors 
and federal employees and required agencies to begin the process of 
developing and implementing policies, practices, and tools for 
managing the multisector workforce by: 
* adopting a framework for planning and managing the multisector 
workforce built on strategic human-capital planning; 
* conducting a human-capital analysis of at least one program, 
project, or activity where the agency has concerns about the extent of 
reliance on contractors and reporting on the pilot by April 2010; and; 
* using guidelines that facilitate consistent and sound application of 
statutory requirements when considering insourcing as a tool to manage 
work. 

Source: OMB Memorandum, Increasing Competition and Structuring 
Contracts for the Best Results (Oct. 27, 2009); 
Summary: Memorandum provided initial guidelines to help Chief 
Acquisition Officers and Senior Procurement Executives evaluate the 
effectiveness of their agency's competition practices and processes 
for selecting contract types. The guidelines focused around three key 
questions: 
* How is the agency maximizing the effective use of competition and 
choosing the best contract type for the acquisition? 
* How is the agency mitigating risk when noncompetitive, cost 
reimbursement, or time and materials/labor hour contracts are used? 
* How is the agency creating opportunities to transition to more 
competitive and lower-risk contracts? 
The guidelines also included a set of considerations to help agencies 
address each of these questions. 

Source: OMB Memorandum, Acquisition Workforce Development Strategic 
Plan for Civilian Agencies - FY 2010 - 2014 (Oct. 27, 2009); 
Summary: Memorandum provided guidance for civilian agencies to augment 
and improve the skills of their acquisition workforce, which includes 
contract specialists, contracting officer's technical representatives, 
and program and project managers. Required actions included the 
following mandates: 
* Each civilian agency covered by the Chief Financial Officers Act 
must submit an annual Acquisition Human Capital Plan to OMB by March 
31, 2010, that identifies specific strategies and goals for increasing 
both the capacity and capability of its respective acquisition 
workforce for the period ending in fiscal year 2014; 
* Agencies must use the plan to address needs for an acquisition 
workforce in their annual budget submissions. 

Source: OMB Memorandum, Achieving Better Value from Our Acquisitions 
(Dec. 22, 2009); 
Summary: Memorandum gave a status report on the federal contracting 
community's actions toward meeting the President's goal of saving $40 
billion annually, reducing reliance on high-risk contracting, and 
achieving a more appropriate mix of in-house and contractor labor, 
including: 
* Agencies' fiscal year 2010 acquisition Number of Plans that 
identified a variety of strategies, such as new avenues for strategic 
sourcing; program terminations and reductions; use of online reverse 
auctions and electronic sealed bids; and more aggressive renegotiation 
of contracts; 
* Initiatives were provided that intended to improve the acquisition 
workforce's capability to manage high-risk contracts and to ensure use 
of the most appropriate contract type for each procurement. 

Source: OMB Memorandum, Service Contract Inventories (Nov. 5, 2010); 
Summary: Memorandum provided guidance for agencies in preparing their 
initial service contract inventory for fiscal year 2010. The 
inventories should: 
* serve as a tool for assisting agencies in better understanding how 
their contracted services are being used to support mission and 
operations and ascertain whether the contractors' skills are being 
utilized in an appropriate manner, including insight into the extent 
to which contractors are being used in performing activities by 
analyzing how contracted resources are distributed by function and 
location across an agency and within its components; and; 
* grant insight that is especially important for contracts whose 
performance may involve critical functions or functions closely 
associated with inherently governmental functions. 

GAO: 

Source: Framework for Assessing the Acquisition Function at Federal 
Agencies, GAO-05-218G (Washington, D.C.: September 2005); 
Summary: Published in response to agencies' increasing reliance on 
contractors and systemic contracting weaknesses we and other 
accountability organizations identified, the framework enables high-
level assessments of an agency's contracting function. It consists of 
interrelated cornerstones essential to an efficient, effective, and 
accountable contracting process, including: 
* Organizational alignment and leadership that appropriately places 
the contracting function in the agency, with stakeholders having 
clearly defined roles and responsibilities; aligns contracting with 
the agency's mission and needs; and organizes the contracting function; 
* Policies and processes that are clear, transparent, and implemented 
consistently in the planning, award, administration, and oversight of 
contracting efforts; 
* Human capital, which involves strategically thinking about 
attracting, developing, and retaining talent, and creating a results- 
oriented culture within the contracting workforce; 
* Knowledge and information management that provides credible, 
reliable, and timely data to contracting process stakeholders, 
including the agency's Procurement Department and program staff who 
decide which services to buy, project managers who receive the 
services, managers who maintain supplier relationships, contract 
administrators who oversee compliance, and the finance department that 
pays for the goods and services. 

Pension Benefit Guaranty Corporation (PBGC): 

Source: Procurement Department's Standard Operating Procedures Manual, 
December 2009; 
Summary: This manual implements the FAR and other statutory 
requirements in PBGC to guide procurement activities and establishes 
basic uniform procedures for the internal operation of acquiring 
supplies and services within PBGC. 

Source: Guidelines for Determining Whether to Use Contractors or 
Government Employees and Contracting with PBGC Retirees (Directive GA 
15-4) Aug. 11, 2009; 
Summary: This guidance provides a step-by-step process to assist 
managers in deciding whether to use contractors or government 
employees to perform the agency's work and discusses the agency's 
approach in applying the FAR's guidance on inherently governmental 
functions. 

Source: Selection, Appointment, Training and Management of Contracting 
Officer Technical Representatives (COTRs) and Task Monitors (TMs) 
(Directive PM 25-5) Dec. 21, 2010; 
Summary: This guidance establishes uniform policies and procedures for 
the selection, appointment, training, and management of COTRs and TMs. 

Sources: Federal regulations and documents from the White House, OMB, 
GAO, and PBGC. 

[End of table] 

[End of section] 

Appendix II: Summary of PBGC Actions Taken to Improve Contracting in 
Response to Previous Recommendations: 

PBGC has taken a number of steps to strengthen its contracting process 
in response to contract-related recommendations from previous GAO 
reports, as well as reports from PBGC's Office of Inspector General 
(IG). The tables below provide a detailed summary of the 
recommendations from these reports and PBGC's corresponding actions. 

Table 6: Steps Taken by PBGC in Response to Previous GAO Contract- 
Related Recommendations, 2000 to Present: 

Report: Pension Benefit Guaranty Corporation Contracting Management 
Needs Improvement; GAO/HEHS-00-130 Sept. 18, 2000; 

Recommendation: To improve PBGC's management of its contract 
responsibilities, we recommend that PBGC's Executive Director: 
* Conduct a comprehensive review of PBGC's future human capital needs, 
including the size of the workforce; deployment across the 
organization; and the knowledge, skills, and abilities needed by PBGC; 
PBGC response/action taken: PBGC engaged the National Academy of 
Public Administration to examine human capital issues and assist it in 
conducting a strategic workforce planning study. The National Academy 
of Public Administration recommended a six-step process for PBGC: (1) 
forecast strategic direction; (2) assess business environment; (3) 
assess human capital requirements; (4) determine gaps; 
(5) develop solutions/strategies; and (6) develop an implementation 
plan; 
Status as of 2010: Closed-implemented. 

Recommendation: 
* Address weaknesses in PBGC's procurement process to ensure that 
decisions to award contracts best serve the needs of the government 
and plan participants, while fostering competition; 
PBGC response/action taken: To improve competition, PBGC established a 
team with Procurement Department participation to analyze software 
needs for managing customer relations and conduct market research, and 
a similar team to address its customer service center procurement 
needs. PBGC also began competing more information resource management 
contracts, and contracts with field offices that formerly had been 
sole source; 
Status as of 2010: Closed-implemented. 

Recommendation: 
* Where appropriate, utilize more fixed price contracts and fewer 
labor hour payment arrangements consistent with best practices in 
performance-based contracting; 
PBGC response/action taken: PBGC agreed with this recommendation. PBGC 
noted that it should use more fixed price contracts as appropriate, 
and cited evidence of its efforts to do so beginning in fiscal year 
2004; 
Status as of 2010: Closed-implemented. 

Recommendation: 
* Strengthen policies and procedures for evaluating proposals by 
ensuring that review panels adequately document their contract award 
recommendations in accordance with PBGC's internal guidelines; 
PBGC response/action taken: PBGC stated that it had met this
recommendation with its September 1999 requirement to retain individual
scores from members of Technical Evaluation Panels in the contract 
files, and that it would ensure that other needed documentation is 
retained in the files to ensure that procurement decisions are 
thoroughly documented; 
Status as of 2010: Closed-implemented. 

Recommendation: 
* Strengthen PBGC's contract oversight role by developing the capacity 
to centrally compile and monitor essential field office performance 
data; 
PBGC response/action taken: PBGC's Insurance Operations Department was 
developing a centralized web site that would allow for more effective 
field office oversight, with better tracking of PBGC issues, 
administrative actions, and work plan management; 
Status as of 2010: Closed-implemented. 

Recommendation: 
* Address weaknesses in PBGC's review process for field office 
performance to better ensure that contractors providing benefit 
administration services meet quality and accuracy requirements; 
PBGC response/action taken: The field office review function was moved 
to the division responsible for ensuring compliance with program 
procedures. Also, a consultant was hired to do a risk assessment of 
field office processes, and numerous enhancements were made to the 
review process as a result. The field office review teams underwent a 
4-day training session; 
Status as of 2010: Closed-implemented. 

Recommendation: 
* Develop a comprehensive set of procedural guidance for staff 
responsible for awarding contracts and monitoring contractor 
performance; 
PBGC response/action taken: PBGC has posted contract-policy guidance 
on the Procurement Department intranet site for staff responsible for 
awarding contracts and monitoring contractor performance; 
Status as of 2010: Closed-implemented. 

Recommendation: 
* Revise the current organizational placement and reporting 
relationship of the Contracts and Controls Review Department to 
promote objectivity and independence; 
PBGC response/action taken: The National Academy of Public 
Administration study addressed this issue and PBGC implemented some 
organizational changes to provide greater departmental independence. 
Responsibility for oversight of contract audits was moved from this 
department to the IG. PBGC revised the department's mission, function 
statement, and operating procedures to describe its new duties and 
coordinate respective functions with the IG; 
Status as of 2010: Closed-implemented. 

Report: Pension Benefit Guaranty Corporation Some Steps Have Been 
Taken To Improve Contracting, but a More Strategic Approach is Needed; 
GAO-08-871; Aug. 18, 2008; 
Recommendation: To improve PBGC's performance in an environment of 
heavy contractor use, the Director of PBGC should revise its strategic 
plan and, in drafting the corporation's human capital strategic plan, 
we recommended that the Director of PBGC should: 

Recommendation: 
* Include the Procurement Department in agency-wide strategic planning; 
PBGC response/action taken: PBGC believes that its current strategic 
plan is sufficiently comprehensive to address the recommendation; 
that its final Human Capital Strategic Plan, FY 2010-2014 recognizes 
the importance of contracting; and that the Procurement Department 
provides input to the corporate strategic planning process in various 
ways. In response, GAO stated that the strategic plan only briefly 
mentions performance-based contracting, and that PBGC is missing the 
opportunity to gain the Procurement Department's insight very early in 
the process before contracting decisions are made; 
Status as of 2010: Open pending re-evaluation following completion of 
this study. 

Recommendation: 
* Ensure that the Procurement Director sits on PBGC's three strategic 
teams--the Operations Integration Board, the Budget and Planning 
Integration Team, and the Capital Planning for Information Technology 
Team; 
PBGC response/action taken: PBGC reported that the Director of the
Procurement Department regularly provides advice and consultation on
procurement-related issues to the three strategic planning and 
coordination teams, among others; and that he also participates in 
weekly Department Director meetings and regularly participates in 
agency-wide strategic planning sessions. In response, GAO noted the 
Procurement Departments role in the organization is not consistent 
with the role that procurement plays in achieving the agencys 
mission, both in terms of dollars spent and in terms of the size of
the contractor workforce. PBGC is missing the opportunity to use the
Procurement Departments expertise to focus more strategically and 
help PBGC achieve its strategic goals; 
Status as of 2010: Open pending reevaluation following completion of 
this study. 

Recommendation: 
* Broaden the Procurement Department's May 2007 staffing study to 
include as part of PBGC's agency-wide acquisition workforce those 
positions outside of the Procurement Department that have a 
significant impact on procurement outcomes; 
PBGC response/action taken: In response to our recommendation, PBGC 
expanded its comprehensive review of necessary staffing levels 
relating to procurement functions to include acquisition positions 
outside of the Procurement Department. It identified the universe of 
acquisition positions at PBGC; conducted a review of best practices 
using GAO's Framework for Assessing the Acquisition Workforce; 
and assessed its acquisition-staffing levels using data from the 
Federal Procurement Data System and the Federal Acquisition Institute, 
including supplemental analysis of PBGC's COTR workload data; 
Status as of 2010: Closed-implemented. 

Recommendation: 
* Include in PBGC's human capital strategy detailed Number of Plans 
for how PBGC will obtain contract support; 
PBGC response/action taken: PBGC reported that human capital 
management, including contractor support, is a planned process that is 
strategically linked to their goals. In response, GAO noted that 
PBGC's Human Capital Strategic Plan, FY 2010-2014 did not include any 
detail about how contractor support will be used to meet PBGC's goals, 
and that PBGC needs to address the use of contractors from a more 
strategic level, including current and future needs; 
Status as of 2010: Open pending re-evaluation following completion of 
this study. 

Recommendation: 
* Assess PBGC's contract information to determine if additional 
information is needed to support strategic management of acquisition 
decisions; 
PBGC response/action taken: PBGC reported that information needed to 
support strategic management of acquisition decisions is available 
from the Procurement Department, and that contracting officers in the 
Procurement Department and COTRs have access to and use this 
information. However, PBGC was seeking funds to better integrate its 
data systems; 
Status as of 2010: Open pending re-evaluation following completion of 
this study. 

Recommendation: 
* Develop metrics for PBGC's annual performance plan that document how 
the acquisition function supports PBGC's mission and goals; 
PBGC response/action taken: PBGC stated that it has metrics relating 
to contractor performance in individual performance Number of Plans of 
senior executives with major contracting projects, as well as in those 
of Procurement Department employees. PBGC will review whether these 
measures can be incorporated into the annual performance budget to 
document how the acquisition function supports PBGC's mission and 
goals; 
Status as of 2010: Open pending re-evaluation following completion of 
this study. 

Recommendation: To improve PBGC's contract management as it implements 
a performance-based approach to contracting, the Director of PBGC 
should: 

Recommendation: 
* Provide comprehensive training on performance-based contracting for 
PBGC's Procurement Department staff, managers, and acquisition-related 
workforce; 
PBGC response/action taken: In 2008, PBGC reported that it began 
training Procurement Department staff in developing performance-based 
statements of work, and as of 2010, PBGC noted that the PBGC Training 
Institute provided a wide range of procurement-related training for 
Procurement Department personnel and COTRs, such as training on 
performance-based contracting. In addition, the Procurement Department 
has incorporated training on performance-based contracting in its 
Acquisition Excellence Workshops; 
Status as of 2010: Open pending re-evaluation following completion of 
this study. 

Recommendation: 
* Develop practices to help ensure accountability for the Procurement 
Department staff carrying out contract-monitoring responsibilities; 
PBGC response/action taken: Report: In 2008, PBGC stated that 
Procurement Department staff were working closely with departmental 
representatives to ensure that statements of work and resulting 
contracts were properly structured to achieve desired outcomes. In 
2010, PBGC reported that in November 2008, three new full-time 
equivalents (FTE) were added to the Procurement Department staff and 
that in May 2009, a contract was issued to provide two contract close-
out specialists to help ensure the proper administration and 
accountability of PBGC contracts. In response, however, we noted that 
it is unclear how PBGC will ensure that contracts are structured to 
include quality monitoring and mechanisms such that deficiencies can 
be corrected and good performance is rewarded; that monitoring Number 
of Plans are developed; and that contract monitoring is occurring; 
Status as of 2010: Open pending re-evaluation following completion of 
this study. 

Recommendation: 
* Ensure that future contracts measure performance in terms of 
outcomes, provide incentives for desired outcomes, and ensure payment 
of award fees only for excellent performance; 
PBGC response/action taken: In 2010, PBGC reported that its 
Procurement Department staff was working closely with its customers to 
properly analyze requirements and to ensure that, when possible, 
requirements were being staffed in performance-based terms and 
resulting contracts are structured to achieve desired outcomes. To 
ensure proper review of future requirements, PBGC had implemented a 
process for the advance procurement planning of all requirements with 
an estimated value greater than $100,000, including provisions related 
to justification and approval of labor hour contracts. In response, 
however, we noted that it is not clear that PBGC has implemented a 
performance-based approach to contracting, that contracts measure 
performance in terms of outcomes, or that the contracts provide 
incentives for accomplishment of desired outcomes; 
Status as of 2010: Open pending re-evaluation following completion of 
this study. 

Source: GAO. 

[End of table] 

Table 7: Steps Taken by PBGC in Response to Previous IG Contract- 
Related Recommendations, 2005 to Present: 

Report: Fiscal Year 2004 Financial Statement Audit--Management Letter 
(Financial) (2005-10) 3/31/05; 
Recommendation: PD-82: Develop and implement a policy related to 
deobligating prior program years' unliquidated balances in a timely 
manner; 
PBGC response/action taken: The Procurement Department and its staff 
are in compliance with PBGC's procurement function by adhering to the 
general policy requirements cited in Directive FM 15-2, Obligating 
Procedures for PBGC Procurements; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Report: Controls Related to the Purchase Card Program (2005-14) 6/7/05; 
(Reopened 8/21/09); 
Recommendation: PD-37: Establish a process whereby all cardholders and 
approving officials are reviewed at least annually, verifying such 
items as spending limits, number of cards assigned, and actual card 
usage; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The Procurement Department 
developed and implemented a new Purchase Card Manual; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-38: Identify, document, and make available the 
requirements for documentation to support purchases and approvals 
including retention; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The Procurement Department 
developed and implemented a new Purchase Card Manual; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Report: Audit of Procurement Activities Related to Award of Morneau 
Sobeco Contracts PBGC01-CT-00-0597 and PBGC01-CT-03-0667 (2005-18) 
9/29/05; (Reopened 8/21/09); 
Recommendation: PD-39: Establish and document procedures requiring 
retention of all documents supporting the advanced planning process in 
accordance with FAR and PBGC requirements; 
PBGC response/action taken: Management is currently working to address 
the issues raised by the IG; 
Status as of 6/8/2011: Management expects to submit a revised response 
by 6/30/2011. 

Recommendation: PD-40: Establish and document detailed policies and 
procedures for PBGC's procurement activities, including duties 
performed by the contracting officer, contract specialists, and the 
competition advocate; 
PBGC response/action taken: Management is currently working to address 
the issues raised by the IG; 
Status as of 6/8/2011: Management expects to submit a revised response 
by 6/30/2011. 

Report: Audit of Monitoring Activities Related to Morneau Sobeco 
Contracts PBGC01-CT-00-0597 and PBGC01-CT-03-0667 (2005-19) 9/29/05; 
(Reopened 8/21/09); 
Recommendation: PD-42: The Procurement Department should ensure that 
status-report due dates have appropriate reporting deadlines and that 
the reports contain useful information; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. To correct the finding and 
institutionalize the contracting officer review process, PBGC issued 
Directive PM 25-5, entitled, Selection, Appointment, Training, and 
Management of Contracting Officer Technical Representatives (COTRs) 
and Task Monitors (TMs), on December 21, 2010; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-43: The Contracting Officer Technical 
Representatives (COTR) for the Morneau Sobeco contracts should ensure 
that all required status reports are submitted in a timely manner; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. To correct the finding and 
institutionalize the contracting officer review process, PBGC issued 
Directive PM 25-5, entitled, Selection, Appointment, Training, and 
Management of Contracting Officer Technical Representatives (COTRs) 
and Task Monitors (TMs), on December 21, 2010; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-44: The COTR for the Morneau Sobeco contracts 
should ensure that acceptance and receipt of all contract deliverables 
are documented in writing; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. To correct the finding and 
institutionalize the contracting officer review process, PBGC issued 
Directive PM 25-5, entitled, Selection, Appointment, Training, and 
Management of Contracting Officer Technical Representatives (COTRs) 
and Task Monitors (TMs), on December 21, 2010; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: Report: PD-47: The Procurement Department should 
establish written operating procedures, including establishing due 
dates, for contract-monitoring duties, including those of the contract 
specialist and contracting officer; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. To correct the finding and 
institutionalize the contracting officer review process, PBGC issued 
Directive PM 25-5, entitled, Selection, Appointment, Training, and 
Management of Contracting Officer Technical Representatives (COTRs) 
and Task Monitors (TMs), on December 21, 2010; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: Report: PD-48: The contract specialist for the Morneau 
Sobeco contracts should document reviews performed of the COTR status 
reports as well as any review and approval of invoices; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. To correct the finding and 
institutionalize the contracting officer review process, PBGC issued 
Directive PM 25-5, entitled, Selection, Appointment, Training, and 
Management of Contracting Officer Technical Representatives (COTRs) 
and Task Monitors (TMs), on December 21, 2010; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-49: The Procurement Department should formalize its 
procedures for contract specialist reviews of invoices, including 
determining compliance with contract terms, such as labor rates, other 
direct costs, and subcontracting; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. To correct the finding and 
institutionalize the contracting officer review process, PBGC issued 
Directive PM 25-5, entitled, Selection, Appointment, Training, and 
Management of Contracting Officer Technical Representatives (COTRs) 
and Task Monitors (TMs), on December 21, 2010; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Report: Audit of Costs Claimed by Morneau Sobeco under Contract Nos. 
PBGC01-00-0597 and PBGC01-CT-03-0667 from July 24, 2000, through 
November 30, 2004 (2005-20) 9/29/05; 
Recommendation: PD-76: The contracting officer should direct Morneau 
to establish formal written procedures to recalculate invoice amounts 
and reconcile invoices to supporting documentation; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. During the contract 
performance period an invoice review was completed and no exceptions 
were taken to the contractor cost representations; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Report: Procurement Cycle Performance Audit Report on the Initiation, 
Monitoring, and Close-out of Acquisition of Goods and Services in 
Excess of $2,500. (2006-09) 3/16/06; (Reopened 8/21/09); 
Recommendation: PD-61: Create a single, definitive source for PBGC 
procurement procedures, and assign responsibility for monitoring 
contract-administration responsibilities below the contracting officer 
level; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. PBGC issued Directive PM 
25-5 entitled, Selection, Appointment, Training, and Management of 
Contracting Officer Technical Representatives (COTRs) and Task 
Monitors (TMs), on December 21, 2010. Paragraph 8f of the Directive 
requires the COTR to submit a quarterly status report to the 
contracting officer; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-62: Issue guidance that requires: review of 
documents before inclusion into the contract file to ensure it is 
complete and contains all necessary items, such as signatures; 
and documentation evidencing invoice review by contract specialists is 
included in the contract file; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. PBGC issued Directive PM 
25-5 entitled, Selection, Appointment, Training, and Management of 
Contracting Officer Technical Representatives (COTRs) and Task 
Monitors (TMs), on December 21, 2010. Paragraph 8f of the Directive 
requires the COTR to submit a quarterly status report to the 
contracting officer; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-64: Implement controls to ensure the COTR/contract 
database is updated each time a COTR changes so that the database 
remains continuously up to date; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-65: Implement controls so that invoices are 
identified and marked as "final" or "not final"; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. Management concurred with 
the finding and recommendation and is currently in compliance with 
PBGC Directive FM 15-2, Obligating Procedures for PBGC Procurements; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-69: Implement contract close-out procedures 
required by the FAR, namely the inclusion in the contract file of 
evidence of receipt of goods/services and final payment. Among the 
items tested, we did not identify any instances of contracts receiving 
payment for goods and services not delivered. Procurement Department 
management indicated that PBGC has compensating controls which reduce 
this risk to an acceptable level; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The Procurement Department 
provided the IG examples of two contracts that were closed in 
accordance with its Standard Operating Procedures (SOP); 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-70: Evaluate the need for a COTR to write and 
submit a Monthly Status Report to the contract specialist; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. PBGC issued Directive PM 
25-5, entitled, Selection, Appointment, Training and Management of 
Contracting Officer Technical Representatives (COTRs) and Task 
Monitors (TMs), on December 21, 2010. Paragraph 8f of the Directive 
requires the COTR to submit a quarterly status report to the 
contracting officer; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Report: Unisys Corporation Examination of Contract Termination 
Proposal Under Delivery Order No. PBGC01-DO 04-0143 (Issued under 
Prime Contract No. GSOOT99ALDO212) (2006-14) 9/29/06; and; 
Audit of Incurred Costs on Delivery Order No. PBGC01-DO-04-0143 
(Issued under Prime Contract No. GSOOT99ALDO212 (2006-16) 9/29/06; 
Recommendation: PD-71: The IG recommends reviewing $197,035 in 
questioned costs to determine reasonableness, allocability, and 
allowability; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. A settlement agreement was 
reached with the contractor. All monies due the PBGC have been 
collected under the contract; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-72: The IG recommends reviewing $146,626 in 
questioned costs to determine reasonableness, allocability, and 
allowability; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. A settlement agreement was 
reached with the contractor. All monies due the PBGC have been 
collected under the contract; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Report: Resource Consultants (RCI), Inc. Report for Costs Incurred by 
Resource Consultants, Inc. under Contract PBGC01-CT-01-603 for Fiscal 
Years ended September 30, 2001, 2002, 2003, 2005, and 2006 (2007-13) 
9/27/07; and; under Contract PBGC01-CT-04-691 for Fiscal Years ended 
September 30, 2005, and 2006 (2007-14) 9/27/07; 
Recommendation: PD-86: PBGC's contracting officer should instruct 
RCI's management personnel to comply with the contract's provision to 
submit time sheets to PBGC for every contract employee billed. PBGC's 
contracting officer should review the unsupported billings of $52,380 
for the eight employees to determine the allowability of these 
billings and initiate necessary collection actions; 
PBGC response/action taken: The contracting officer issued a demand 
letter on May 18, 2009, to the contractor. The contractor has filed an 
appeal with Civilian Board of Contract Appeals which has established 
November 7 through November 10, 2011, as dates for hearing the appeal; 
Status as of 6/8/2011: Management expects to forward information to 
the IG for review by 12/31/2011. 

Recommendation: PD-92: PBGC contracting officer should instruct RCI's 
management personnel to comply with the contract's provision to submit 
time sheets to PBGC for every contract employee billed. PBGC's 
contracting officer should review the unsupported billings of $2,051 
for this employee to determine the allowability of these billings and 
initiate necessary collection actions; 
PBGC response/action taken: The contracting officer issued a demand 
letter on May 18, 2009, to the contractor. The contractor has filed an 
appeal with Civilian Board of Contract Appeals which has established 
November 7 through November 10, 2011, as dates for hearing the appeal; 
Status as of 6/8/2011: Management expects to forward information to 
the IG for review by 12/31/2011. 

Report: Limited Disclosure Report on Internal Controls--PBGC's Fiscal 
Years 2007 and 2006 Financial Statements Audit (2008-02) 11/15/07; 
Recommendation: FS-07-16: Enforce directive PM 05-1, PBGC Entrance and 
Duty and Separation Procedures for Federal and Contract Employees, to 
ensure contract personnel can effectively be tracked and ensure a 
formal Entrance on Duty and Separation Clearance processes are 
followed; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. Management updated 
Directive PM 05-01, entitled, PBGC Entrance on Duty and Separation 
Procedures for Federal and Contract Employees. The revised directive 
was finalized and distributed during the week of October 18, 2010; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Report: Integrated Management Resources Group (IMRG), Inc. Report on 
PBGC's Contract Administration of the IMRG Contract CT-03-0652 (2008- 
04) 12/7/07; 
Recommendation: PD-102: We recommend that the contracting officer take 
steps to verify that contractor personnel assigned to PBGC contracts 
meet the required educational and experience requirements in the 
contracts and develop a written document of requirements, such as a 
contract administration plan, for COTRs to use in determining the 
adequacy of the contractor's process for assigning the personnel to 
PBGC contracts; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. PBGC issued Directive PM 
25-5, entitled, Selection, Appointment, Training and Management of 
Contracting Officer Technical Representatives (COTRs) and Task 
Monitors (TMs), on December 21, 2010. Paragraph 8f of the Directive 
requires the COTR to submit a quarterly status report to the 
contracting officer; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-103: We recommend the Procurement Department issue 
written guidance to persons acting as technical monitors and assisting 
in the contract-deliverable process. The guidance should outline their 
duties and responsibilities and also be linked to the terms and 
provisions of the contract; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. PBGC issued Directive PM 
25-5, entitled, Selection, Appointment, Training and Management of 
Contracting Officer Technical Representatives (COTRs) and Task 
Monitors (TMs), on December 21, 2010. Paragraph 8f of the Directive 
requires the COTR to submit a quarterly status report to the 
contracting officer; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-104: We recommend the contracting officer and COTR 
for each department collaborate to include procedures on the contract-
administration plan to ensure contract employees who work 5 hours or 
more do not charge 30 minutes for lunch to the PBGC contract; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The Procurement Department 
provided evidence to the IG that the contractor was in compliance with 
the terms and conditions of the contract; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-105: The contracting officer and officials for each 
department should collaborate on developing a performance goal and 
objectives to assess the COTR's performance on monitoring contractors; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. PBGC issued Directive PM 
25-5, entitled, Selection, Appointment, Training and Management of 
Contracting Officer Technical Representatives (COTRs) and Task 
Monitors (TMs), on December 21, 2010. Paragraph 8e of the Directive 
discussed the evaluation of COTR performance; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Report: Booz Allen Hamilton (BAH) Audit on Costs Incurred by BAH under 
Contracts: PBGC01-CT-00-0596, PBGC01-CT-03-0681, PBGC01-CT-04-0685, 
PBGC01-CT-05-0742 for Contractor Fiscal Year ended March 31, 2006 
(2008-09) 8/26/08; 
Recommendation: PD-109: The Defense Contract Audit Agency questioned 
$97,581 of indirect costs. The IG recommended that delaying closing 
out any of the above contracts until the final indirect cost rates 
have been issued. When the rates have been finalized and provided, 
request adjustments on current public vouchers under each contract if 
there is a substantial difference between costs billed using the 2006 
interim indirect rates and the costs incurred using the 2006 final 
indirect rates. Settling indirect costs on an annual basis will 
prevent substantial underpayment or overpayment which otherwise may 
not be corrected until the contract is completed. The IG can provide 
assistance in calculating the difference if necessary; 
PBGC response/action taken: Final indirect rates have not been 
determined by the Defense Contract Audit Agency. Until they finalize 
the rates and provide them to us, management cannot proceed; 
Status as of 6/8/2011: Management expects to forward information to 
the IG for review by 8/31/2011. 

Report: TechGuard Security, LLC. Report for Costs Incurred by 
TechGuard Security under Contract PBGC01-CT-05-0739 for Fiscal Years 
ended September 30, 2006, and September 30, 2007 (2008-11) 9/30/08; 
Recommendation: PD-119: Procurement Department should review invoices 
that were submitted and question all costs related to these 
individuals; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. A settlement agreement was 
reached with the contractor. All monies due the PBGC have been 
collected under the contract; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-121: Obtain documentation of employment/ 
educational verification from TechGuard officials for these 
individuals. Pending receipt of documentation, these individuals 
should not be assigned to PBGC contracts; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. A settlement agreement was 
reached with the contractor. All monies due the PBGC have been 
collected under the contract; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-122: Determine the labor costs and total dollars 
billed to PBGC that should be refunded for individuals whose 
employment and/or education cannot be verified. Pending verification 
of authenticity, these individuals should not be assigned to work on 
PBGC contracts; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. A settlement agreement was 
reached with the contractor. All monies due the PBGC have been 
collected under the contract; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Report: Spectrum International, Inc. Report for Costs Incurred by 
Spectrum International, Inc. under Contract PBGC01-03-0654 for Fiscal 
Years ended September 30, 2006, and September 30, 2007 (2008-12) 
9/30/08; 
Recommendation: PD-112: Follow up on proposed corrective actions by 
Spectrum officials for developing and implementing written policies 
and procedures for comparing an applicant's education and experience 
to the contract requirements and documenting the analyses; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The PBGC contracting 
officer provided the IG evidence that the contractor is in compliance 
with the terms and conditions of the contract; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-114: Require Spectrum officials to provide evidence 
that the four individuals identified in the report meet education and 
experience requirements of the contract; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The PBGC contracting 
officer provided the IG evidence that the contractor is in compliance 
with the terms and conditions of the contract; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: Report: PD-115: Require Spectrum officials to provide 
to PBGC a detailed corrective-action plan time frame for completion of 
the necessary steps to implement written policies and procedures for 
performing limited-scope background checks prior to submitting 
personnel for approval by PBGC; and that PBGC monitor the progress of 
the corrective-action plan and follow up on those actions when 
necessary; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The PBGC contracting 
officer provided the IG evidence that the contractor is in compliance 
with the terms and conditions of the contract; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-117: Require Spectrum officials to develop written 
accounting policies and procedures to include such areas as payroll, 
timekeeping, invoicing, human resources, and personnel files. These 
written procedures should provide for independent checks of key 
accounting records, such as recalculating invoices and tracing 
invoices to supporting documentation; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The PBGC contracting 
officer provided the IG evidence that the contractor is in compliance 
with the terms and conditions of the contract; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Report: Paragon Technology Group, Inc. (2008-13) 9/30/08; 
Recommendation: PD-123: Determine the extent to which reliance will be 
placed on the building-access report and whether to seek a refund of 
$21,164 from Paragon officials; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The PBGC contracting 
officer reached a settlement with the contractor; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-124: Initiate collection efforts to recover $21,164; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The PBGC contracting 
officer reached a settlement with the contractor; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-125: Conduct a detailed audit of all hours worked 
by the program manager to determine if additional questioned costs 
exist; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The PBGC contracting 
officer reached a settlement with the contractor; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-126: Seek a refund of $30,622 from Paragon 
officials; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The PBGC contracting 
officer reached a settlement with the contractor; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-127: Review invoices that were submitted and 
question all costs related to the individual identified in the report; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The PBGC contracting 
officer reached a settlement with the contractor; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-129: Obtain documentation of employment/ 
educational verification from Paragon officials for individuals 
identified in the report. Pending receipt of documentation, these 
individuals should not be assigned to PBGC contracts; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The PBGC contracting 
officer reached a settlement with the contractor; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-130: Obtain evidence verifying the authenticity of 
degrees awarded abroad. Pending verification of authenticity, these 
individuals should not be assigned to work on PBGC contracts; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The PBGC contracting 
officer reached a settlement with the contractor; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-131: Determine the labor costs and total dollars 
billed to PBGC that should be refunded for individuals whose 
employment and/or education cannot be verified; PBGC response/action 
taken: Management has reported completing corrective actions for this 
recommendation. The PBGC contracting officer reached a settlement with 
the contractor; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Report: Fiscal Year 2009 FISMA Independent Evaluation Report (EVAL- 
2010-07) 3/22/10; 
Recommendation: FISMA-09-12: Ensure all PBGC IT acquisitions include 
appropriate language as required by FAR  39.101(d); 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. In cooperation with the 
Office of General Counsel and the Office of Information Technology 
Enterprise Information Security Office, we developed a local clause 
which will be included in future contracts for information technology, 
as required by FAR 39.101 (d); 
Status as of 6/8/2011: IG is reviewing management's submission. 

Report: Fiscal Year 2010 Financial Statement Audit--Management Letter 
(Financial) (2011-06) 2/24/11; 
Recommendation: PD-133: Management should formalize the paper review 
process in the Procurement Department and emphasize the importance of 
the compliance with FAR requirements regarding justification for other 
than full and open competition and determination of price 
reasonableness; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The peer-review process 
has under gone a significant enhancement. The enhanced peer review 
focuses on improving quality and upholding standards. The Procurement 
Department also conducted mandatory FAR Part 13, Simplified 
Acquisition Procedures training for all contracting personnel; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-134: Management should implement controls in the 
certification of the justification for other than full and open 
competition to ensure that the contracting officers review and certify 
the justification for other than full and open competition for 
accuracy and completeness; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The peer-review process 
has under gone a significant enhancement. The enhanced peer review 
focuses on improving quality and upholding standards. The Procurement 
Department also conducted mandatory FAR Part 13, Simplified 
Acquisition Procedures training for all contracting personnel; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-135: Management should implement controls in the 
approval of the determination of price reasonableness to ensure that 
the contracting officers grant approval based on the reasonableness of 
the contract price; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The peer-review process 
has under gone a significant enhancement. The enhanced peer review 
focuses on improving quality and upholding standards. The Procurement 
Department also conducted mandatory FAR Part 13, Simplified 
Acquisition Procedures training for all contracting personnel; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-136: Management should implement controls in the 
peer-review process to ensure that all required documentation is 
listed on the peer-review checklist, and to ensure that all applicable 
documentation is signed by the contracting officers; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The peer-review process 
has under gone a significant enhancement. The enhanced peer review 
focuses on improving quality and upholding standards. The Procurement 
Department also conducted mandatory FAR Part 13, Simplified 
Acquisition Procedures training for all contracting personnel; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Recommendation: PD-136: Management should implement controls in the 
peer-review process to ensure that the corrective actions are taken 
timely based on the results of the paper-review process; 
PBGC response/action taken: Management has reported completing 
corrective actions for this recommendation. The peer-review process 
has under gone a significant enhancement. The enhanced peer review 
focuses on improving quality and upholding standards. The Procurement 
Department also conducted mandatory FAR Part 13, Simplified 
Acquisition Procedures training for all contracting personnel; 
Status as of 6/8/2011: IG is reviewing management's submission. 

Report: Evaluation of PBGC's Strategic Preparations for a Potential 
Workload Influx (EVAL-2011-01) 11/16/10; 
Recommendation: PBGC-02: Coordinate the corporation-wide development 
and implementation of the Workload Surge Strategy Plan with the 
Executive Management Committee and key department directors, to 
include the Director of the Procurement Department and the Director of 
the Human Resources Department. Facilitate this coordination by 
ensuring that the methodologies used to develop the Number of Plans 
are consistent and that key decisions are documented; 
PBGC response/action taken: As an alternative to the recommendation, 
PBGC proposed developing a directive to ensure there is corporate-wide 
understanding and vetting of the Large Influx Working Group and 
planning documentation; 
Status as of 6/8/2011: Unresolved. 

Recommendation: PBGC-03: Develop a workforce strategy tailored to 
address gaps in numbers, deployment, and alignment of the human 
capital to be obtained through contracts. This strategy, which may 
incorporate aspects of PBGC's Human Capital Strategy, should reflect 
the importance of the contact workforce to PBGC and support linkage of 
staffing and contracting decisions at the corporate level; 
PBGC response/action taken: Report: As an alternative PBGC proposed: 
- Identifying contract work (not contracts) that will be relied on in 
large influx situations; 
- Identifying contract work where there are limited market 
alternatives, hence requiring increased managerial awareness; 
- Creation of a capacity model that can be used to project the impact 
of an influx on existing contracts; 
- Annual and as needed COTR reviews of projected workloads, including 
an evaluation of existing contractors to gauge capacity; 
- In scenarios where the Large Influx Working Group is acting, COTRs 
will identify areas that have potentially limited capacity and plan 
accordingly; Status as of 6/8/2011: Unresolved. 

Recommendation: PBGC-04: As part of planning for the workload surge, 
ensure that business units vet the feasibility of Number of Plans to 
expand existing contracts with subject matter experts in the 
Procurement Department; 
PBGC response/action taken: As an alternative to the recommendation, 
PBGC proposed incorporating contract ceilings and scope evaluations in 
the Large Influx Working Group Planning Document to be developed; 
Status as of 6/8/2011: Unresolved. 

Source: Based on information provided by PBGC IG. 

[End of table] 

[End of section] 

Appendix III Scope and Methodology of the Contract File Review: 

To obtain examples of recent improvements to PBGC's contracting 
processes and help illustrate the extent to which PBGC is ensuring the 
integrity of its contracting process, we selected a small judgmental 
sample of eight contracts for review. Two contracts were selected from 
each of PBGC's four main program departments. These four departments, 
listed below, account for more than 70 percent of the agency's 
contract obligations in fiscal year 2010: 

* Benefits Administration and Payment Department (BAPD); 

* Corporate Investments Department (CID); 

* Department of Insurance Supervision and Compliance (DISC); and: 

* Office of Information Technology (OIT). 

* To select specific contracts for review, we obtained a list of all 
active contracts from each of these four program departments, 
supplemented by data from PBGC's procurement department and from the 
Federal Procurement Data System-Next Generation (FPDS-NG).[Footnote 
89] In selecting contracts, we looked for the following 
characteristics: 

* contracts awarded relatively recently (if possible, in fiscal year 
2009 or 2010); 

* contracts for an ongoing activity (including some for actuarial 
services); 

* contracts awarded for a large dollar amount; 

* some contracts awarded to the same contractor that held the contract 
previously and some that changed to a different contractor; and: 

* proximity of the primary location where services provided under the 
contract are performed. 

* Table 8 provides an overview of the attributes of the eight 
contracts we chose for our review based on these selection criteria. 

Table 8: Summary of PBGC Contracts Selected for Review: 

Contract/contract number: Hewitt Associates, LLC; 
PBGC01-CT-10-0023; 
PBGC department: BAPD; 
Activity/service provided: Actuarial support services to support 
pension benefit administration; 
Contract award date: 9/28/2010; 
Contract type: Labor hour; 
Estimated contract value at award: $45,850,000; 
Cumulative total amount obligated (03/30/2011): $500,000; 
Length of contract with option periods: 5 years. 

Contract/contract number: Randstad US, L.P.; 
PBGC01-CT-09-0034; 
PBGC department: BAPD; 
Activity/service provided: Pension benefit administration services at 
Miami, Florida, field benefit administration office; 
Contract award date: 8/21/2009; 
Contract type: Labor hour; 
Estimated contract value at award: $27,847,898; 
Cumulative total amount obligated (03/30/2011): $6,308,000; 
Length of contract with option periods: 5 years. 

Contract/contract number: PIMCO PBGC01-CT-09-0004; 
PBGC department: CID; 
Activity/service provided: Investment management services for a fixed 
income debt portfolio; 
Contract award date: 10/1/2008; 
Contract type: Firm fixed price; 
Estimated contract value at award: $34,580,000[A]; 
Cumulative total amount obligated (03/30/2011): $15,465,238; 
Length of contract with option periods: 7 years. 

Contract/contract number: Thornburg Investment Management PBGC01-CT- 
10-0017; 
PBGC department: CID; 
Activity/service provided: Investment management services for an 
international equity portfolio; 
Contract award date: 4/21/2010; 
Contract type: Firm fixed price; 
Estimated contract value at award: $22,400,000; 
Cumulative total amount obligated (03/30/2011): $3,200,000; 
Length of contract with option periods: 7 years. 

Contract/contract number: Barclays Capital Inc.[B] PBGC01-CT-07-0775; 
PBGC department: DISC; 
Activity/service provided: Financial advisory, analytical, and expert 
witness services provided in support of the mitigation of risks to the 
PBGC pension insurance program; 
Contract award date: 8/7/2007; 
Contract type: Firm fixed price indefinite delivery/indefinite 
quantity contract; 
Estimated contract value at award: $30,100,000; 
Cumulative total amount obligated (03/30/2011): $9,602,000; 
Length of contract with option periods: 4.3 years. 

Contract/contract number: Milliman, Inc. PBGC01-CT-09-0008; 
PBGC department: DISC; 
Activity/service provided: Actuarial support services provided in 
support of the mitigation of risks to the PBGC pension insurance 
program; 
Contract award date: 11/12/2008; 
Contract type: Labor hour; 
Estimated contract value at award: $3,738,700; 
Cumulative total amount obligated (03/30/2011): $2,303,450; 
Length of contract with option periods: 5 years. 

Contract/contract number: Booz Allen Hamilton PBGC01-D-09-0004; 
PBGC department: OIT; 
Activity/service provided: Computer software support services for 
various PBGC business information systems; 
Contract award date: 2/27/2009; 
Contract type: Firm fixed price and cost plus fee indefinite delivery/ 
indefinite quantity PBSA contract; 
Estimated contract value at award: $43,110,914; 
Cumulative total amount obligated (03/30/2011): $11,163,921; 
Length of contract with option periods: 5 years. 

Contract/contract number: TechGuard Security, LLC; 
PBGC01-CT-10-0021; 
PBGC department: OIT; 
Activity/service provided: Information technology security support 
services; 
Contract award date: 4/30/2010; 
Contract type: Firm fixed price; 
Estimated contract value at award: $461,205; 
Cumulative total amount obligated (03/30/2011): $499,639[C]; 
Length of contract with option periods: 0.5 years. 

Source: GAO analysis of PBGC data. 

[A] Total contract value for PIMCO assumes that the $4.94 million 
obligated at award for assets under management during the base year 
and an equivalent amount will be obligated under each of the 6 option 
years that follow. 

[B] The contractor at award was Lehman Brothers which was purchased by 
Barclays Capital Inc. during 2008. A novation agreement was executed 
in November 2008 that formalized the arrangement for Barclays to 
provide the required services under this contract. 

[C] This contract was extended for 15 days; therefore the cumulative 
amount reflects the firm fixed price increase of $38,734. 

[End of table] 

To conduct our review of contract files, we used a standardized data 
collection instrument organized around certain indicators of key 
management controls that we developed based on provisions of the 
Federal Acquisition Regulation (FAR),[Footnote 90] PBGC's own internal 
policies and procedures for contracting (see appendix I), and past GAO 
work. These indicators are summarized in table 9. We also used 
structured interview guides to obtain information from PBGC officials 
familiar with each contract's award process and postaward monitoring. 

Table 9: Indicators of Key Contracting Process Controls: 

Indicator: Acquisition planning; 
Advance procurement planning documentation prepared with all required 
elements; 
Definition/description: An advance procurement planning document is 
prepared to initiate procurement actions with sufficient lead time and 
to summarize the acquisition planning deliberations for the future 
contract award. 

Indicator: Initial contract award; 
Full and open competition used to solicit offers and award the 
contract, except when FAR allowed a noncompetitive award; 
Definition/description: For proposed contract actions expected to 
exceed $25,000, the contracting opportunity is posted to FedBizOpps 
for all interested firms to see and submit a proposal. PBGC may award 
a contract using less than full and open competition only when certain 
circumstances such as the unique capabilities of a single vendor are 
required or if PBGC would suffer serious financial or other injury 
from the delay caused by full and open competition. 

Indicator: Initial contract award; 
Justification documented for the use of labor hours or cost plus fixed 
fee contracts, where applicable; 
Definition/description: Indicator: A written justification is prepared 
by the contracting officer to show why the award of certain types of 
contracts, including a cost reimbursement contract or labor hours 
contract was the most suitable contract type for the future contract 
award. 

Indicator: Initial contract award; 
Technical Evaluation Panel formed correctly and the evaluation process 
was documented; 
Definition/description: Source selection records are maintained for 
negotiated procurements that include a written report documenting the 
assessment of each offeror's proposal against the stated evaluation 
criteria by the technical evaluation panel and a written report is 
prepared documenting the rationale used by the source selection 
authority to justify the contract award made to the successful offeror. 

Indicator: Option-year award; 
Inclusion of option years justified; 
and if applicable, awarded with the proper justification documented; 
Definition/description: The contracting officer justifies in writing, 
among other things, the notification period for exercising an option 
and includes the justification in the contract file. When exercising 
an option period, the contracting officer prepares a written 
justification showing that exercising the option is the best method of 
fulfilling the government's continuing need after considering price 
and other factors. 

Indicator: Contract oversight; 
COTR assigned before contract award and is properly trained and 
certified; 
Definition/description: PBGC department directors recommend employees 
to the Procurement Department to serve as COTRs for contracts within 
their areas of responsibility. The Procurement Department prepares 
COTR designation letters to the specified individuals (by name, not 
position) and describes delegated responsibilities. All COTRs complete 
the formal COTR training class before being appointed and maintain 
their skills through subsequent COTR refresher training classes. 

Indicator: Contract oversight; 
Adequate controls to ensure that contractor personnel assigned to the 
contract met PBGC specifications; 
Definition/description: Indicator: An "Education and Experience 
Qualifications" contract clause has been included as part of the 
contract, if applicable. This is needed to facilitate the review of 
contractor workers assigned to the contract to ensure they meet the 
staffing qualifications and experience requirements outlined in the 
contract. 

Indicator: Contract oversight; Contractor oversight and performance 
evaluations documented as applicable; 
Definition/description: Oversight will vary by department and contract 
and may include contractor performance reports and COTR site visit 
reports; but the review of contractor invoices (before payment is 
made) is mandatory for all contracts. 

Source: GAO analysis of the FAR and PBGC documents. 

[End of table] 

In conducting our review, we examined the documentation in the files 
for evidence that PBGC's contracting processes were adhering to these 
key contracting process management controls. We then summarized the 
results of our review into categories reflecting the various stages of 
PBGC's contracting process (see table 10). 

Table 10: Evidence of Contracting Process Management Controls at PBGC: 

PBGC contract/task order (TO): Hewitt Associates, LLC; PBGC01-CT-10-
0023; 
Award date: 9/28/2010; 
Documentation in the contract file: 
For acquisition planning: Yes; 
To justify the use of nonfixed price controls, if applicable: Yes; 
To justify noncompetitive contract awards, if applicable: N/A; 
To provide a complete history of the contract award decision: Yes; 
To support the use of option years, if applicable: Yes; 
To show the COTR assigned properly and meets training standards: Yes; 
To contain contract oversight measures and invoice reviews: Yes. 

[Shaded row] PBGC contract/task order (TO): Randstad US, L.P.; 
PBGC01-CT-09-0034; 
Award date: 8/21/2009; 
Documentation in the contract file: 
For acquisition planning: Yes; 
To justify the use of nonfixed price controls, if applicable: Yes; 
To justify noncompetitive contract awards, if applicable: N/A; 
To provide a complete history of the contract award decision: Yes; 
To support the use of option years, if applicable: Yes; 
To show the COTR assigned properly and meets training standards: Yes; 
To contain contract oversight measures and invoice reviews: Yes. 

[Shaded row] PBGC contract/task order (TO): PIMCO PBGC01-CT-09-0004; 
Award date: 10/1/2008; 
Documentation in the contract file: 
For acquisition planning: No; 
To justify the use of nonfixed price controls, if applicable: N/A; 
To justify noncompetitive contract awards, if applicable: N/A; 
To provide a complete history of the contract award decision: No; 
To support the use of option years, if applicable: No; 
To show the COTR assigned properly and meets training standards: Yes; 
To contain contract oversight measures and invoice reviews: Yes. 

PBGC contract/task order (TO): Thornburg Investment Management PBGC01- 
CT-10-0017; 
Award date: 4/21/2010; 
Documentation in the contract file: 
For acquisition planning: Yes; 
To justify the use of nonfixed price controls, if applicable: N/A; 
To justify noncompetitive contract awards, if applicable: N/A; 
To provide a complete history of the contract award decision: Yes; 
To support the use of option years, if applicable: Yes; 
To show the COTR assigned properly and meets training standards: Yes; 
To contain contract oversight measures and invoice reviews: Yes. 

[Shaded row] PBGC contract/task order (TO): Barclays Capital Inc.[A] 
PBGC01-CT-07-0775; 
Award date: 8/7/2007; 
Documentation in the contract file: 
For acquisition planning: No; 
To justify the use of nonfixed price controls, if applicable: N/A; 
To justify noncompetitive contract awards, if applicable: N/A; 
To provide a complete history of the contract award decision: No; 
To support the use of option years, if applicable: No; 
To show the COTR assigned properly and meets training standards: Yes; 
To contain contract oversight measures and invoice reviews: Yes. 

[Shaded row] PBGC contract/task order (TO): TO #08-03; 
Award date: 3/18/2008; 
Documentation in the contract file: 
For acquisition planning: No; 
To justify the use of nonfixed price controls, if applicable: N/A; 
To justify noncompetitive contract awards, if applicable: N/A; 
To provide a complete history of the contract award decision: No; 
To support the use of option years, if applicable: N/A; 
To show the COTR assigned properly and meets training standards: Yes; 
To contain contract oversight measures and invoice reviews: Yes. 

[Shaded row] PBGC contract/task order (TO): TO #09-04; 
Award date: 6/2/2009; 
Documentation in the contract file: 
For acquisition planning: No; 
To justify the use of nonfixed price controls, if applicable: N/A; 
To justify noncompetitive contract awards, if applicable: N/A; 
To provide a complete history of the contract award decision: No; 
To support the use of option years, if applicable: N/A; 
To show the COTR assigned properly and meets training standards: Yes; 
To contain contract oversight measures and invoice reviews: Yes. 

PBGC contract/task order (TO): TO #10-08; 
Award date: 9/20/2010; 
Documentation in the contract file: 
For acquisition planning: Yes; 
To justify the use of nonfixed price controls, if applicable: N/A; 
To justify noncompetitive contract awards, if applicable: N/A; 
To provide a complete history of the contract award decision: Yes; 
To support the use of option years, if applicable: N/A; 
To show the COTR assigned properly and meets training standards: No; 
To contain contract oversight measures and invoice reviews: Yes. 

PBGC contract/task order (TO): TO #10-09; 
Award date: 9/29/2010; 
Documentation in the contract file: 
For acquisition planning: Yes; 
To justify the use of nonfixed price controls, if applicable: N/A; 
To justify noncompetitive contract awards, if applicable: N/A; 
To provide a complete history of the contract award decision: Yes; 
To support the use of option years, if applicable: N/A; 
To show the COTR assigned properly and meets training standards: No; 
To contain contract oversight measures and invoice reviews: Yes. 

[Shaded row] PBGC contract/task order (TO): Milliman, Inc. PBGC01-CT-
09-0008; 
Award date: 11/12/2008; 
Documentation in the contract file: 
For acquisition planning: Yes; 
To justify the use of nonfixed price controls, if applicable: Yes; 
To justify noncompetitive contract awards, if applicable: N/A; 
To provide a complete history of the contract award decision: Yes; 
To support the use of option years, if applicable: Yes; 
To show the COTR assigned properly and meets training standards: Yes; 
To contain contract oversight measures and invoice reviews: Yes. 

[Shaded row] PBGC contract/task order (TO): Booz Allen Hamilton PBGC01-
D-09-0004; 
Award date: 2/27/2009; 
Documentation in the contract file: 
For acquisition planning: Yes; 
To justify the use of nonfixed price controls, if applicable: No; 
To justify noncompetitive contract awards, if applicable: N/A; 
To provide a complete history of the contract award decision: Yes; 
To support the use of option years, if applicable: Yes; 
To show the COTR assigned properly and meets training standards: Yes; 
To contain contract oversight measures and invoice reviews: Yes. 

[Shaded row] PBGC contract/task order (TO): TO# DO-09-9047; 
Award date: 9/24/2009; 
Documentation in the contract file: 
For acquisition planning: No; 
To justify the use of nonfixed price controls, if applicable: No; 
To justify noncompetitive contract awards, if applicable: N/A; 
To provide a complete history of the contract award decision: No; 
To support the use of option years, if applicable: N/A; 
To show the COTR assigned properly and meets training standards: Yes; 
To contain contract oversight measures and invoice reviews: Yes. 

PBGC contract/task order (TO): TO# DO-10-9009; 
Award date: 3/22/2010; 
Documentation in the contract file: 
For acquisition planning: No; 
To justify the use of nonfixed price controls, if applicable: No; 
To justify noncompetitive contract awards, if applicable: N/A; 
To provide a complete history of the contract award decision: Yes; 
To support the use of option years, if applicable: No; 
To show the COTR assigned properly and meets training standards: Yes; 
To contain contract oversight measures and invoice reviews: Yes. 

PBGC contract/task order (TO): TO# DO-10-9042; 
Award date: 9/7/2010; 
Documentation in the contract file: 
For acquisition planning: Yes; 
To justify the use of nonfixed price controls, if applicable: No; 
To justify noncompetitive contract awards, if applicable: N/A; 
To provide a complete history of the contract award decision: Yes; 
To support the use of option years, if applicable: Yes; 
To show the COTR assigned properly and meets training standards: Yes; 
To contain contract oversight measures and invoice reviews: Yes. 

PBGC contract/task order (TO): TO# DO-10-9056; 
Award date: 9/22/2010; 
Documentation in the contract file: 
For acquisition planning: Yes; 
To justify the use of nonfixed price controls, if applicable: No; 
To justify noncompetitive contract awards, if applicable: N/A; 
To provide a complete history of the contract award decision: Yes; 
To support the use of option years, if applicable: N/A; 
To show the COTR assigned properly and meets training standards: Yes; 
To contain contract oversight measures and invoice reviews: Yes. 

PBGC contract/task order (TO): TechGuard Security, LLC; 
PBGC01-CT-10-0021; 
Award date: 4/30/2010; 
Documentation in the contract file: 
For acquisition planning: Yes; 
To justify the use of nonfixed price controls, if applicable: N/A; 
To justify noncompetitive contract awards, if applicable: Yes; 
To provide a complete history of the contract award decision: Yes; 
To support the use of option years, if applicable: Yes; 
To show the COTR assigned properly and meets training standards: Yes; 
To contain contract oversight measures and invoice reviews: Yes. 

Source: GAO analysis of PBGC data. 

Note: Shaded rows denote that the contract award was made before the 
PBGC procurement SOP was issued in December 2009. Nonshaded rows 
denote that the contract award was made after the PBGC procurement SOP 
was issued in December 2009. 

[A] The contractor at award was Lehman Brothers which was purchased by 
Barclays Capital Inc., during 2008. A novation agreement was executed 
in November 2008 that formalized the arrangement for Barclays to 
provide the required services under this contract. 

[End of table] 

[End of section] 

Appendix IV: Elements of a Performance-Based Service Acquisition 
Contract: 

Element: Measurable results; 
Description: To the maximum extent practicable, describe the work in 
terms of the required results rather than either "how" the work is to 
be accomplished or the number of hours to be provided. Agencies should 
structure performance work statements in solicitations around the 
purpose of the work to be performed, that is, what is to be performed 
rather than how to perform it. For example, instead of telling the 
contractor how to perform aircraft maintenance or stating how many 
mechanics should be assigned to a crew, the solicitation, which is 
incorporated into the contract, should state that the contractor is 
accountable for ensuring that 100 percent of flight schedules are met 
or that 75 percent of all aircraft will be ready for flight. 

Element: Performance standards; 
Description: Include measurable performance standards (i.e., in terms 
of quality, timeliness, quantity, etc.). Performance standards should 
be set in terms of quality, timeliness, and quantity, among other 
things. 

Element: Performance-assessment methods; 
Description: Include the methods of assessing contractor performance 
against the performance standards. Describe how the contractor's 
performance will be evaluated in a quality assurance plan. 

Element: Use of incentives; 
Description: Include performance incentives where appropriate. When 
used, the performance incentives shall correspond to the performance 
standards set forth in the contract. Incentives should be used when 
they will induce better quality performance and may be either positive 
or negative, or a combination of both. 

Source: GAO analysis of the FAR and Office of Federal Procurement 
Policy guidance, Performance-Based Service Acquisition, Interagency 
Task Force on Performance-Based Service Acquisition, Contracting for 
the Future, (Washington D.C., July 2003). 

[End of table] 

[End of section] 

Appendix V: Comments from the Pension Benefit Guaranty Corporation: 

Pension Benefit Guaranty Corporation: 
Office of the Director: 
Protecting America's Pensions: 
1206 K Street, N.W. 
Washington. D.C. 20005-4026:  

June 8, 2011: 

Barbara D. Bovbjerg: 
Managing Director, Education, Workforce and Income Security Issues:  
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Ms. Bovbjerg: 

Thank you for the opportunity to comment on your draft report on 
contracting (GAO-11-5S8).  

Contracting is critically important to PBGC. It's an activity we take 
very seriously, and we appreciate GAO's work in helping to make us 
even better.  

PBGC also appreciates that your report recognized the recent 
improvements we have made in our contracting practices. We have worked 
hard at PBGC to implement prior GAO and Office of Inspector General 
recommendations related to contracting. Our new policies and 
procedures training of staff, and increased use of performance based 
contracting have all contributed to a better controlled procurement 
environment at PBGC.  

There is always room for additional improvement. In that spirit, we 
agree with the recommendations in your report.  

While PBCG is not subject to the Fair Act, we are prepared to use our 
current Comprizon system to code by function and address your first 
recommendation. i.e., to develop a sufficiently detailed service 
contract inventory to enable a better work force analysis. This should 
help us in balancing--and rebalancing-our workforce as new challenges 
arise. 
 
Your second recommendation, to conduct a risk analysis in contractor-
reliant areas and evaluate costs and benefits of using contractors, is 
also well taken. PBGC management already considers risks and costs in 
its decision making, but we can and will conduct a more formal process 
as it relates to staffing and contracting.  

With respect to your third recommendation, to document the rationale 
when not using a performance-based service acquisition approach, we 
have already added a line to the Advanced Procurement Plan form in 
order in raise the issue in a deliberate manner prior to contract 
solicitation and will ensure further documentation in the future.  

We agree with you that it is important that we tie the performance 
metrics of major service contracts to PBGC's strategic goals. We do. 
Our purchases are essential to achieving those goals, and our 
management team well understands both that relationship and the 
emphasis on our goals and mission. For that reason, we're comfortable 
with your recommendation that we document the relationship. 

Under separate cover, we are providing technical comments to your 
staff and are prepared to discuss these, as necessary. 

PBGC has come a long way in contracting, in recent years. We 
appreciate GAO's both recognizing it and helping us strengthen this 
key capability in protecting America's pensions. 

Sincerely, 

Signed by: 

Josh Gotbaum: 

[End of section] 

Appendix VI: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Barbara D. Bovbjerg (202) 512-7215 bovbjergb@gao.gov William T. Woods 
(202) 512-4841 woodsw@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Margie Shields, Assistant 
Director; Ted Burik, Analyst-in-Charge; Matt Drerup; Najeema 
Washington; and Paul Wright made significant contributions to this 
report. Susan Aschoff, Gena Evans, Sheila McCoy, Mimi Nguyen, Ken 
Patton, Sylvia Schatz, Walter Vance, and Craig Winslow also made 
important contributions. 

[End of section] 

Related GAO Products: 

Reports on PBGC Management: 

Pension Benefit Guaranty Corporation: Improvements Needed to 
Strengthen Governance Structure and Strategic Management. [hyperlink, 
http://www.gao.gov/products/GAO-11-182T]. Washington, D.C.: December 
1, 2010. 

Pension Benefit Guaranty Corporation: More Strategic Approach Needed 
for Processing Complex Number of Plans Prone to Delays and 
Overpayments. [hyperlink, http://www.gao.gov/products/GAO-09-716]. 
Washington, D.C.: August 17, 2009. 

Pension Benefit Guaranty Corporation: Financial Challenges Highlight 
Need for Improved Governance and Management. [hyperlink, 
http://www.gao.gov/products/GAO-09-702T]. Washington, D.C.: May 20, 
2009. 

Pension Benefit Guaranty Corporation: Improvements Needed to Address 
Financial and Management Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-08-1162T]. Washington, D.C.: September 
24, 2008. 

Pension Benefit Guaranty Corporation: Need for Improved Oversight 
Persists. [hyperlink, http://www.gao.gov/products/GAO-08-1062]. 
Washington, D.C.: September 10, 2008. 

Pension Benefit Guaranty Corporation: Some Steps Have Been Taken to 
Improve Contracting, but a More Strategic Approach Is Needed. 
[hyperlink, http://www.gao.gov/products/GAO-08-871]. Washington, D.C.: 
August 18, 2008. 

PBGC Assets: Implementation of New Investment Policy Will Need 
Stronger Board Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-08-667]. Washington, D.C.: July 17, 
2008. 

Pension Benefit Guaranty Corporation: A More Strategic Approach Could 
Improve Human Capital Management. [hyperlink, 
http://www.gao.gov/products/GAO-08-624]. Washington, D.C.: June 12, 
2008. 

Pension Benefit Guaranty Corporation: Governance Structure Needs 
Improvements to Ensure Policy Direction and Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-07-808]. Washington, D.C.: July 6, 
2007. 

Private Pensions: The Pension Benefit Guaranty Corporation and Long- 
Term Budgetary Challenge. [hyperlink, 
http://www.gao.gov/products/GAO-05-772T]. Washington, D.C.: June 9, 
2005. 

Pension Benefit Guaranty Corporation Single-Employer Insurance 
Program: Long-Term Vulnerabilities Warrant "High Risk" Designation. 
[hyperlink, http://www.gao.gov/products/GAO-03-1050SP]. Washington, 
D.C.: July 23, 2003. 

Pension Benefit Guaranty Corporation: Appearance of Improper Influence 
in Certain Contract Awards. [hyperlink, 
http://www.gao.gov/products/T-OSI-00-17]. Washington, D.C.: September 
21, 2000. 

Pension Benefit Guaranty Corporation: Contract Management Needs 
Improvement. [hyperlink, http://www.gao.gov/products/T-HEHS-00-199]. 
Washington, D.C.: September 21, 2000. 

Pension Benefit Guaranty Corporation: Contracting Management Needs 
Improvement. [hyperlink, http://www.gao.gov/products/GAO/HEHS-00-130]. 
Washington, D.C.: September 18, 2000. 

Reports on Governmentwide Contracting Practices: 

Sourcing Policy: Initial Agency Efforts to Balance the Government to 
Contractor Mix in the Multisector Workforce. [hyperlink, 
http://www.gao.gov/products/GAO-10-744T]. Washington, D.C.: May 20, 
2010. 

The Office of Management and Budget's Acquisition Workforce 
Development Strategic Plan for Civilian Agencies. [hyperlink, 
http://www.gao.gov/products/GAO-10-459R]. Washington, D.C.: April 23, 
2010. 

Defense Acquisitions: Further Actions Needed to Address Weaknesses in 
DOD's Management of Professional and Management Support Contracts. 
[hyperlink, http://www.gao.gov/products/GAO-10-39]. Washington, D.C.: 
November 20, 2009. 

Civilian Agencies' Development and Implementation of Insourcing 
Guidelines. [hyperlink, http://www.gao.gov/products/GAO-10-58R]. 
Washington D.C.: October 6, 2009. 

Federal Contracting: Observations on the Government's Contracting Data 
Systems. [hyperlink, http://www.gao.gov/products/GAO-09-1032T]. 
Washington, D.C.: September 29, 2009. 

Department of Homeland Security: Better Planning and Assessment Needed 
to Improve Outcomes for Complex Service Acquisitions. [hyperlink, 
http://www.gao.gov/products/GAO-08-263]. Washington, D.C.: April 22, 
2008. 

Department of Homeland Security: Progress and Challenges in 
Implementing the Department's Acquisition Oversight Plan. [hyperlink, 
http://www.gao.gov/products/GAO-07-900]. Washington, D.C.: June 13, 
2007. 

Highlights of a GAO Forum: Federal Acquisition Challenges and 
Opportunities in the 21st Century. [hyperlink, 
http://www.gao.gov/products/GAO-07-45SP]. Washington, D.C.: October 6, 
2006. 

Improvements Needed to the Federal Procurement Data System-Next 
Generation. [hyperlink, http://www.gao.gov/products/GAO-05-960R]. 
Washington, D.C.: September 27, 2005. 

Framework for Assessing the Acquisition Function at Federal Agencies. 
[hyperlink, http://www.gao.gov/products/GAO-05-218G]. Washington, 
D.C.: September 2005. 

Contract Management: Opportunities to Improve Surveillance on 
Department of Defense Service Contracts. [hyperlink, 
http://www.gao.gov/products/GAO-05-274]. Washington, D.C.: March 17, 
2005. 

Federal Procurement: Spending and Workforce Trends. [hyperlink, 
http://www.gao.gov/products/GAO-03-443]. Washington, D.C.: April 30, 
2003. 

Contract Management: Guidance Needed for Using Performance-Based 
Service Contracting. [hyperlink, 
http://www.gao.gov/products/GAO-02-1049]. Washington, D.C.: September 
23, 2002. 

Best Practices: Taking a Strategic Approach Could Improve DOD's 
Acquisition of Services. [hyperlink, 
http://www.gao.gov/products/GAO-02-230]. Washington, D.C.: January 18, 
2002. 

Internal Control Standards: Internal Control Management and Evaluation 
Tool. [hyperlink, http://www.gao.gov/products/GAO-01-1008G]. 
Washington, D.C.: August 2001. 

High-Risk Reports: 

High-Risk Series: An Update. [hyperlink, 
http://www.gao.gov/products/GAO-11-278]. Washington, D.C.: February 
2011. 

High-Risk Series: An Update. [hyperlink, 
http://www.gao.gov/products/GAO-09-271]. Washington, D.C.: January 
2009. 

High-Risk Series: An Update. [hyperlink, 
http://www.gao.gov/products/GAO-03-119]. Washington, D.C.: January 
2003. 

High-Risk Series: An Update. [hyperlink, 
http://www.gao.gov/products/GAO-01-263]. Washington, D.C.: January 
2001. 

[End of section] 

Footnotes: 

[1] Pub. L. No. 93-406,  4002(a), 88 Stat. 829, 1004 (codified as 
amended at 29 U.S.C.  1302(a)). 

[2] A defined benefit plan promises a specified monthly benefit at 
retirement, generally based on a plan formula that considers such 
factors as salary and service. In contrast, a defined contribution 
plan does not promise a specific amount of benefits at retirement, but 
is based on the investment returns on employee and/or employer 
contributions to an employee's individual account. 

[3] 48 C.F.R ch. 1 (2011). The FAR is the primary regulation for all 
federal executive agencies in their acquisition of supplies and 
services with appropriated funds. Although PBGC is not required to 
follow the FAR in all acquisitions, it generally does so on a 
voluntary basis. For a complete list of contract-related policies and 
regulations that we reviewed, see appendix I. 

[4] FPDS is a database for the government-acquisition community that 
provides summary-level data on federal contracts and is used for 
policy and trend analysis. The FPDS-NG was intended to improve the 
prior FPDS system in several ways, including providing more timely and 
accurate data; enabling users to generate their own reports; and 
providing easier user access to data. Although we have identified 
issues with the system, we believe the data used in this report are 
sufficiently reliable for our purposes. For an example of our work on 
FPDS, see GAO, Improvements Needed to the Federal Procurement Data 
System-Next Generation, [hyperlink, 
http://www.gao.gov/products/GAO-05-960R] (Washington, D.C.: Sept. 27, 
2005); and GAO, Federal Contracting: Observations on the Government's 
Contracting Data Systems, [hyperlink, 
http://www.gao.gov/products/GAO-09-1032T] (Washington, D.C.: Sept. 29, 
2009). 

[5] Performance-based acquisition is a technique for structuring an 
acquisition around the results to be achieved as opposed to the 
process by which the work is to be performed. 48 C.F.R.  2.101 and 
37.101 (2011). 

[6] 29 U.S.C.  1302. 

[7] Vested employees are those employees who have earned a 
nonforfeitable right to benefits funded by employer pension 
contributions. 29 U.S.C.  1002(25). 

[8] 29 U.S.C.  1322 and 1322a. A single-employer plan is established 
and maintained by one employer. Single-employer Number of Plans can be 
established unilaterally by the sponsor or through a collective 
bargaining agreement with a labor union. 29 U.S.C.  1002(41). A 
multiemployer plan is a collectively bargained arrangement between a 
labor union and a group of employers in a particular trade or 
industry. Management and labor representatives must jointly govern 
multiemployer Number of Plans. 29 U.S.C.  1002(37). 

[9] 29 U.S.C.  1342(a). The guaranteed benefit limits for 
participants in single-employer Number of Plans cannot exceed the 
statutory maximum, adjusted annually, at the time the plan terminates. 
For 2011, the maximum is $54,000 per year for a person retiring at age 
65 with no survivor benefit (that is, a single-life annuity). The 
maximum is lower for those retiring under age 65 or with a survivor 
benefit. 29 U.S.C.  1322(b)(3); 29 C.F.R.  4022.23 (2011). Other 
guaranteed benefit limits for participants in single-employer Number 
of Plans include the phase-in limit and accrued-at-normal limit. Under 
the phase-in limit, for any benefit increase implemented through a 
plan amendment that has been in effect for less than 5 years, only a 
pro-rata portion can be guaranteed. 29 U.S.C.  1322(b)(1) and (7); 29 
C.F.R.  4022.25 (2011). Under the accrued-at-normal limit, the 
monthly guaranteed benefit cannot be greater than the monthly benefit 
provided as a straight-life annuity (that is, a periodic payment for 
the life of the retiree, with no additional payments to survivors) 
available at the plan's normal retirement age. 29 C.F.R.  4022.21 
(2011). 

[10] 29 U.S.C.  1431. The guaranteed benefit limits for participants 
in multiemployer Number of Plans are lower than for those in single-
employer Number of Plans. The Multiemployer Pension Plan Amendments 
Act of 1980 established a benefit guarantee resulting in a limit of 
$5,850 per year for participants with 30 years of service in 
multiemployer Number of Plans. Pub. L. No. 96-364,  102, 94 Stat. 
1210-15. The Consolidated Appropriations Act of 2001 effectively 
raised the guaranteed limit to $12,870. Pub. L. No. 106-554, appendix 
F,  951, 114 Stat. 2763, 2763A-586 (2000) (codified at 29 U.S.C.  
1322a(c)). 

[11] 29 U.S.C.  1302(a). 

[12] 29 U.S.C.  1302(d). 

[13] 29 U.S.C.  1305. 

[14] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-01-263] (Washington, D.C.: January 
2001), p. 79. 

[15] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-03-119] (Washington, D.C.: January 
2003). 

[16] Although we again designated PBGC's single-employer program as a 
"high-risk" program in 2003, we first designated PBGC as a high-risk 
area in 1990, citing taxpayers' exposure to potential losses from the 
termination of large, underfunded Number of Plans. In 1995, we removed 
PBGC from our list of high-risk areas due to congressional and agency 
actions that we believed would reduce PBGC's exposure to losses. 

[17] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-09-271] (Washington, D.C.: January 
2009). 

[18] PBGC estimated that its exposure from underfunded single-employer 
Number of Plans that were at risk of "reasonably possible" termination 
in the future totaled approximately $170 billion in fiscal year 2010, 
up from $47 billion in fiscal year 2008. PBGC estimated that its 
exposure from multiemployer Number of Plans increased from $30 million 
in fiscal year 2008 to $20 billion in fiscal year 2010, due primarily 
to the addition of two large Number of Plans. 

[19] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-11-278] (Washington, D.C.: February 
2011). 

[20] GAO, Framework for Assessing the Acquisition Function at Federal 
Agencies, [hyperlink, http://www.gao.gov/products/GAO-05-218G] 
(Washington D.C.: September 2005). 

[21] GAO, Pension Benefit Guaranty Corporation: Contracting Management 
Needs Improvement, [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-00-130] (Washington, D.C.: Sept. 
18, 2000). 

[22] GAO, Pension Benefit Guaranty Corporation: Some Steps Have Been 
Taken to Improve Contracting, but a More Strategic Approach is Needed, 
[hyperlink, http://www.gao.gov/products/GAO-08-871] (Washington D.C.: 
Aug. 18, 2008). 

[23] On average, it takes PBGC approximately 3 years to value the 
assets and determine the benefits for all the participants in an 
underfunded pension plan that is terminated and placed under its 
trusteeship. 

[24] In contrast with underfunded single-employer Number of Plans that 
are terminated and trusteed, PBGC does not trustee multiemployer 
Number of Plans. The event triggering PBGC's involvement is the same 
for both types of Number of Plans: plan insolvency--the inability to 
pay benefits when due. 29 U.S.C.  1431(a). But in the case of 
multiemployer Number of Plans, insolvency usually occurs after all 
contributing employers have withdrawn from the plan, leaving the plan 
without a source of income. In such cases, PBGC will provide financial 
assistance, but will not assume trusteeship of the plan. 

[25] During fiscal year 2010, PBGC paid a total of nearly $5.6 billion 
in benefits and financial assistance to participants in single-
employer and multiemployer Number of Plans. 

[26] GAO, Framework for Assessing the Acquisition Function at Federal 
Agencies, [hyperlink, http://www.gao.gov/products/GAO-05-218G] 
(Washington, D.C.: September 2005). See appendix I for details on the 
four cornerstones. 

[27] GAO, Pension Benefit Guaranty Corporation: Some Steps Have Been 
Taken to Improve Contracting, but a More Strategic Approach is Needed, 
[hyperlink, http://www.gao.gov/products/GAO-08-871] (Washington D.C.: 
Aug. 18, 2008). At the time of our 2008 report, these bodies were 
called, respectively, the Operations Integration Board, the Budget and 
Planning Integration Team, and the Capital Planning for Information 
Technology Team. 

[28] PBGC, Guidelines for Determining Whether to Use Contractors or 
Government Employees and Contracting with PBGC Retirees, Directive GA 
15-4, (Washington D.C., Aug. 11, 2009). 

[29] 48 C.F.R.  2.101 (2011). See appendix I for information on 
inherently governmental functions. 

[30] 48 C.F.R.  7.503 (2011). 

[31] PBGC, Human Capital Strategic Plan, FY 2010-2014, (Washington 
D.C., 2010), p. 14. 

[32] PBGC IG Report, Evaluation of PBGC's Strategic Preparations for a 
Potential Workload Influx, Eval 2011-1/PA-09-65 (Washington D.C., Nov. 
16, 2010). 

[33] Specifically, PBGC proposed the development of a "Large Influx 
Working Group," which would develop a planning document as a basis for 
alternative actions to address the IG's recommendations, including 
creating a capacity model to project the impact of an influx on 
existing contracts and reviewing existing contractors and program 
areas to gauge workforce capacity. 

[34] During PBGC's annual budget process, executive management reviews 
department funding requests for contracting and FTE levels. 

[35] PBGC, Directive GA 15-4. 

[36] Specifically, the PBGC policy memo cites two OMB documents: OMB, 
Performance of Commercial Activities, OMB Circular No. A-76 Revised 
(Washington, D.C., Apr. 27, 2000); and OMB, Guidelines and Discount 
Rates for Benefit-Cost Analysis of Federal Programs, Circular No. A-94 
Revised (Washington, D.C., Oct. 29, 1992). 

[37] At one point, there were 23 field offices under contract to PBGC. 
An agency policy in place from the early 1980s to the mid-1990s, which 
is no longer in effect, required that whenever a pension plan with 
1,000 or more participants was terminated and trusteed, a new field 
office would open. 

[38] National Academy of Public Administration, Addressing the Pension 
Benefit Guaranty Corporation's Future Workforce Needs (Washington 
D.C., 2001). PBGC requested assistance from the National Academy of 
Public Administration to address our recommendation that it conduct a 
comprehensive review of its future human capital needs, and to use the 
results of the review to better link staffing and contracting 
decisions to its long-term strategic planning process. 

[39] Although these indicators are imperfect measures of workload and 
may not adequately capture the dynamic flow and changing complexity of 
PBGC's workload, PBGC uses these indicators to characterize its 
workload in annual reports and its budget justification to Congress. 

[40] According to PBGC officials, "troubled Number of Plans" include 
those PBGC defines as either "reasonably possible terminations" (that 
is, Number of Plans that have $5 million or more of underfunding and 
have a sponsor that has filed for bankruptcy, has not made its minimum 
funding contributions, or has a below-investment-grade bond rating) or 
"probable terminations" (that is, Number of Plans that have plan 
sponsors that are in liquidation or a comparable insolvency 
proceeding, that may file for plan termination due to distress, or 
that PBGC is considering for involuntary termination). 

[41] Bowman Cutter, a memorandum written for OMB, Oct. 12, 1977. 

[42] OPM delegates personnel management functions to federal agencies 
and other entities, including PBGC, and provides oversight to ensure 
that delegated activities are performed in accordance with established 
principles and standards. If OPM finds an agency to be out of 
compliance, it may withdraw such delegation. 5 U.S.C.  1104. 

[43] Specifically, because of a severe lack of documentation to 
support PBGC's examining actions during its competitive recruitment 
process, OPM was unable to validate that selections complied with law, 
regulation, and merit system principles. 

[44] GAO, Highlights of a GAO Forum: Federal Acquisition Challenges 
and Opportunities in the 21st Century, [hyperlink, 
http://www.gao.gov/products/GAO-07-45SP] (Washington, D.C.: Oct. 6, 
2006). 

[45] Acquisition Advisory Panel, Report of the Acquisition Advisory 
Panel to the Office of Federal Procurement Policy and the United 
States Congress (Washington D.C., January 2007); see Services 
Acquisition Reform Act of 2003, Pub. L. No. 108-136, Title XIV,  1423. 

[46] For example, in reviewing the use of professional and management 
support services at the Department of Homeland Security, we found that 
program officials failed to assess the risk that government decisions 
were not sufficiently independent from contractor judgments in such 
critical areas as intelligence analysis. See GAO, Department of 
Homeland Security: Improved Assessment Needed to Manage Risk of 
Contracting for Selected Services, GAO-07-990 (Washington, D.C.: Sept. 
17, 2007). 

[47] In reviewing the management and oversight of contractors at the 
Department of Defense, we found various problems may have negatively 
impacted agency operations at deployed locations, see GAO, Military 
Operations: High-Level DOD Action Needed to Address Long-standing 
Problems with Management and Oversight of Contractors Supporting 
Deployed Forces, [hyperlink, http://www.gao.gov/products/GAO-07-145] 
(Washington D.C.: Dec. 18, 2006). 

[48] For a list of additional previous GAO reports on this topic, see 
the Related GAO Products section on governmentwide contracting 
practices at the end of this report. 

[49] OMB, Managing the Multi-Sector Workforce, OMB M-09-26 (Washington 
D.C., July 29, 2009). 

[50] PBGC officials estimated that OIT had 360 contractors in fiscal 
year 2010, with 190 contractors accounted for within OIT and 170 
distributed over four other PBGC departments. The activities OIT 
shifted to federal employees have been primarily service desk and IT 
customer service-related activities. Officials noted that because of 
the expertise required, reducing the number of software development 
contractor workers by hiring additional federal employees would be 
much more difficult. 

[51] The new insourcing provision was enacted with the Omnibus 
Appropriations Act, 2009, and applies to all executive agencies 
subject to the Federal Activities Inventory Reform Act of 1998 (FAIR 
Act). Pub. L. No. 111-8, div. D, tit. VII,  736, 124 Stat. 524, 689-
91. Government corporations, such as PBGC, are exempt from the FAIR 
Act. Hence, PBGC is exempt from the new insourcing requirement and 
from OMB's guidance on this topic. 

[52] OMB M-09-26; OMB, Improving Government Acquisition, OMB M-09-25 
(Washington D.C., July 29, 2009); OMB, Increasing Competition and 
Structuring Contracts for the Best Results, Memorandum for Chief 
Acquisition Officers, Senior Procurement Executives (Washington D.C., 
Oct. 27, 2009); OMB, Acquisition Workforce Development Strategic Plan 
for Civilian Agencies--FY 2010-2014, Memorandum for Chief Acquisition 
Officers, Senior Procurement Executives, Chief Financial Officers, 
Chief Human Capital Officers (Washington D.C., Oct. 27, 2009); and 
OMB, Service Contract Inventories, Memorandum for Chief Acquisition 
Officers, Senior Procurement Executives (Washington D.C., Nov. 5, 
2010). OMB has proposed a policy letter clarifying "inherently 
governmental functions," which has not yet been finalized. OMB, Work 
Reserved for Performance by Federal Government Employees, 75 Fed. Reg. 
16,188 (Washington D.C., Mar. 31, 2010). 

[53] OMB, Service Contract Inventories. The Consolidated 
Appropriations Act, 2010 required, among other things, executive 
agencies subject to the FAIR Act (other than the Department of 
Defense) to develop inventories of their service contracts and tasked 
OMB with developing and disseminating guidance to aid them in this 
requirement. Pub. L. No. 111-117, div. C, tit. VII,  743 123 Stat. 
3034, 3216-19 (2009). 

[54] OMB required civilian agencies to submit their fiscal year 2010 
inventories by December 30, 2010, and their fiscal year 2011 
inventories by December 30, 2011. Specifically, the 2010 inventories 
were to include, for each contract over $25,000, the organizational 
components of the agency administering and receiving services under 
contract, the total dollar amount obligated and funding source for the 
contract, and identifying information about the contract, among other 
things. The 2011 inventories are to include all of the above, plus a 
description of the role that contracted services played in achieving 
agency objectives, the total dollar amount invoiced for services under 
the contract, and the number and work location of contractor 
employees, expressed as FTEs. We are conducting a study of the 
inventories, and the report is expected to be completed next year. 

[55] See footnote 51. 

[56] OMB, Service Contract Inventories. 

[57] The President and OMB have also encouraged using fixed price 
contracts and awarding contracts competitively. See the President's 
March 4, 2009, Memorandum for the Heads of Executive Departments and 
Agencies on Government Contracting, and OMB, Increasing Competition 
and Structuring Contracts for the Best Results. 

[58] PBGC's IG, Trend Analysis Report: PBGC Procurement Issues From 
2000 through 2007, 2007-6/CA-0036 (Washington, D.C., July 26, 2007). 

[59] The Procurement Director said that this additional contractor 
support is for recurring work that will require funding in future 
budget years, and may at some point involve the transition from 
contractors to federal employees. More importantly, he noted that if 
the recurring work for postaward contract file reviews is not 
supported in future budget requests, then the Procurement Department 
will not be able to continue to address the IG's recommendations in 
this area. See, for example, PBGC IG, Audit of Monitoring Activities 
Related to Morneau Sobeco Contracts, PBGC01-CT-00-0597 and PBGC01-CT-
03-0667 (2005-19/CA-0008-2), (Washington D.C., 2005); and PBGC IG, 
Procurement Cycle Performance Audit Report on the Initiation, 
Monitoring, and Close-out of Acquisition of Goods and Services in 
Excess of $2,500 (2006-09/CA-0010), (Washington D.C., 2006). 

[60] See GAO, Matter of Pension Benefit Guaranty Corporation's Use of 
Contingent Fee Arrangement With Outside Counsel, B-223146 (Washington 
D.C.: Oct. 7, 1986); and GAO, Matter of Pension Benefit Guaranty 
Corporation--Reimbursement for Financial Analysis Services, B-307849 
(Washington D.C.: Mar. 1, 2007). 

[61] For details of our review of the eight contract files, see 
appendix III. 

[62] PBGC, Selection, Appointment, Training and Management of 
Contracting Officer Technical Representatives (COTRs) and Task 
Monitors (TMs), PBGC Directive Number: PM 25-5 (Washington D.C., Dec. 
21, 2010). 

[63] PBGC IG, Agreed-Upon Procedures to Verify Contract Personnel 
Qualifications, Contract PBGC01-CT-04-0727 for Fiscal Years ended 
September 30, 2006 and 2007 (AUD-2009-07/CA-08-53) (Washington D.C., 
Sept. 25, 2009). 

[64] This contract clause requires the contractor to validate the 
educational and/or experience qualifications for all staff it assigns 
to personnel positions which call for minimum qualifications in the 
contract. The contractor must also retain a record of this independent 
validation for government inspection. 

[65] For details of our review of the eight contract files, see 
appendix III. 

[66] PBGC IG, Report on PBGC's Administration of Contractor (2008-4/CA-
0033-2) (Washington D.C., Dec. 7, 2007). 

[67] The term "fixed price," as used in this report, refers to 
contracts that are firm fixed price, fixed price incentive fee, and 
fixed price with economic price adjustment. The term "cost 
reimbursement," as used in this report, refers to contracts such as 
cost sharing, cost plus incentive fee, cost plus award fee, and cost 
plus fixed fee. 

[68] See, for example, GAO, Federal Contracting: Opportunities Exist 
to Increase Competition and Assess Reasons When Only One Offer Is 
Received, [hyperlink, http://www.gao.gov/products/GAO-10-833] 
(Washington D.C.: July 26, 2010). For a list of additional previous 
GAO reports on this topic, see the Related GAO Products section at the 
end of this report. 

[69] 48 C.F.R.  6.101 (2011). 

[70] 48 C.F.R.  6.302 (2011). 

[71] PBGC began providing complete data to FPDS in fiscal year 2008. 

[72] OMB defines "contract obligation" as a legally binding agreement 
that will result in the immediate or future disbursement of funds to 
pay a company in private industry or an individual for goods or 
services that it provides under contract to the government. When PBGC 
signs a new contract, places an order on an existing contract, or 
takes other actions that require the government to make payments to a 
contractor, the agency is incurring a contract obligation. 

[73] 48 C.F.R.  17.205 and 17.207 (2011). 

[74] 48 C.F.R.  16.101(b) (2011). 

[75] The President's March 4, 2009, Memorandum for the Heads of 
Executive Departments and Agencies on Government Contracting. 

[76] In circumstances where there is considerable uncertainty 
regarding the requirements, however, cost reimbursement contracts or, 
in more limited circumstances, labor hour contracts may provide for a 
more effective allocation of risk between PBGC and the contractor. 
But, labor hour contracts pose an especially high risk to the 
government since the contractor is only obligated to provide its best 
efforts in accomplishing the objectives of a contract with few direct 
incentives for the contractor to control costs and perform efficiently. 

[77] Grant Thornton, Benefits Administration and Payment Department: 
Analysis of Contracting for Actuarial Support Services, a study for 
PBGC (Washington D.C., December 2010). 

[78] OMB, Increasing Competition and Structuring Contracts for the 
Best Results (Washington D.C., October 2009). 

[79] Of the three labor hour contracts, two were awarded by BAPD and 
one was awarded by DISC. One BAPD contract, awarded in September 2010, 
supports determining and valuing pension plan benefits for PBGC- 
trusteed Number of Plans. The other BAPD contact, awarded in August 
2009, provides field benefit administration services in Miami, 
Florida. The DISC contract, awarded during November 2008, supports 
analyses that are used to mitigate risks and increase overall funding 
levels for Number of Plans in PBGC's insurance program. See appendix 
III for a more complete description of the contracts included in our 
review. 

[80] The contents of the contract file must be sufficient to 
constitute a complete history of the transaction for purposes of: 
providing a complete background as a basis for informed decisions at 
each step in the acquisition process; supporting actions taken; 
providing information for reviews and investigations; and for 
furnishing essential facts in the event of litigation or congressional 
inquiry. 48 C.F.R.  4.801 (2011). The FAR provides examples of the 
records normally contained, if applicable, in contract files which 
include: acquisition-planning information and other presolicitation 
documents; required justifications and approvals such as for the type 
of contract awarded; other justifications and determination and 
findings; and source selection documentation such as technical 
evaluation reports and source-selection decision memorandum. 48 C.F.R. 
 4.803 (2011). 

[81] Other requirements found in the FAR state that a cost 
reimbursement contract may be used only when (1) the contractor's 
accounting system is adequate for determining costs applicable to the 
contract, and (2) appropriate government surveillance during contract 
performance will provide reasonable assurance that efficient methods 
and effective cost controls are used. 48 C.F.R. 16.301-3(a)(3)(4) 
(2011). 

[82] Grant Thornton, Benefits Administration and Payment Department: 
Analysis of Contracting for Actuarial Support Services. 

[83] For a detailed description of the elements of a PBSA as outlined 
in the FAR, see appendix V. 

[84] The FAR states that when acquiring services, including those 
acquired under supply contracts or orders, agencies must, with several 
exceptions, use performance-based acquisition methods to the maximum 
extent practicable. 48 C.F.R.  37.102 (2011). 

[85] Agencies are allowed to establish their own criteria for 
determining which contracts are required to have written acquisition 
Number of Plans, and therefore subject to this requirement. 48 C.F.R. 
 7.103(d) and (e), and 7.105 (2011). 

[86] See GAO, Internal Control Management and Evaluation Tool, 
[hyperlink, http://www.gao.gov/products/GAO-01-1008G] (Washington, 
D.C.: August 2001). 

[87] OPM's Performance Appraisal Assessment Tool is a tool federal 
managers can use to develop results-oriented performance cultures 
through their appraisal programs. Appraisal programs provide a formal 
process for communicating organizational goals and individual 
performance expectations by promoting accountability for achieving 
those goals, identifying developmental needs, and assessing 
performance using appropriate measures. See OPM, Performance Appraisal 
Assessment Tool Instructions (Washington, D.C., July 2010). PBGC 
officials told us they made a deliberate choice to exclude contract 
employees from this goal and that the Human Capital Strategic Plan, FY 
2010-2014 was based on OPM criteria and had been approved by OPM. 

[88] Specifically, every actuarial work request assigned to a 
contractor is reviewed by a DISC actuary (the reviewing actuary), the 
same procedure as for actuarial work requests completed by in-house 
DISC actuaries. Whether an actuarial work request is completed by a 
DISC actuary or a contractor, the reviewing actuary determines whether 
the calculations in the actuarial work request have been done 
accurately and in accordance with a common set of case review 
guidelines. 

[89] 75 Fed. Reg. 16,188 (Mar. 31, 2010). Office of Federal 
Procurement Policy proposed replacing the definition of "inherently 
governmental functions" in existing policy and regulation with the 
definition found in the Federal Activities Inventory Reform Act of 
1998 (FAIR Act), which is that an inherently governmental function is 
one that is so intimately related to the public interest as to mandate 
performance by federal employees. Pub. L. No. 105-270,  5(2), 112 
Stat. 2382, 2384 (codified as amended at 31 U.S.C.  501 note). The 
Office of Federal Procurement Policy's proposal also included a new 
category, "critical function," which would be defined to help agencies 
identify and build sufficient internal capacity to effectively perform 
and maintain control over functions that are core to the agency's 
mission and operations. OMB has not yet finalized the proposed policy. 

[990] 48 C.F.R. ch. 1 (2011). The FAR is the primary regulation for 
all federal executive agencies in their acquisition of supplies and 
services with appropriated funds. Although PBGC is not required to 
follow the FAR in all acquisitions, it generally does so on a 
voluntary basis. For a complete list of contract-related policies and 
regulations that we reviewed, see appendix I. 

[End of section] 

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