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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

April 2012: 

Defense Acquisitions: 

Further Actions Needed to Improve Accountability for DOD's Inventory 
of Contracted Services: 

GAO-12-357: 

GAO Highlights: 

Highlights of GAO-12-357, a report to congressional committees. 

Why GAO Did This Study: 

DOD relies on contractors to perform many functions, which can offer 
benefits for DOD. GAO’s work has shown that reliance on contractors to 
support core missions, however, can place DOD at risk of contractors 
performing inherently governmental functions. 

In 2008, Congress required DOD to compile and review an annual 
inventory of contractors working under contracts for services. The 
2010 defense authorization act directed GAO to report for 3 years on 
these inventories. In January 2011, GAO reported on limitations to DOD’
s inventory approach. For this report, GAO assessed (1) DOD’s progress 
in addressing these limitations and (2) the extent to which the 
military departments addressed instances of contractors performing 
functions identified as inherently governmental during reviews of 
their fiscal year 2009 inventories. GAO reviewed DOD guidance, 
interviewed acquisition and manpower officials, and assessed 12 
instances from a nongeneralizable sample in which the Air Force and 
Army determined that contractors had performed inherently governmental 
functions. 

What GAO Found: 

The Department of Defense (DOD) made a number of changes to improve 
the utility of the fiscal year 2010 inventory, such as centrally 
preparing contract data to provide greater consistency among DOD 
components and increasing the level of detail on the services 
provided. DOD, however, continued to rely primarily on the Federal 
Procurement Data System-Next Generation (FPDS-NG) for the inventory 
for most defense components other than the Army. As such, DOD 
acknowledged a number of factors that limited the utility, accuracy, 
and completeness of the inventory data. For example, FPDS-NG does not 
identify more than one type of service purchased for each contract 
action, provide the number of contractor full-time equivalent 
personnel, or identify the requiring activity. As before, the Army 
used its Contractor Manpower Reporting Application to compile its 
fiscal year 2010 inventory. This system collects data reported by 
contractors on services performed at the contract line item level, 
including information on labor hours and the function and mission 
performed. DOD officials noted that the Army’s current process 
complies with legislative requirements. In January 2011, GAO 
recommended that DOD develop a plan with time frames and the necessary 
resources to facilitate its efforts to collect contractor manpower 
data and address other limitations in its approach to meeting 
inventory requirements. DOD concurred with these recommendations. In 
November 2011, DOD submitted to Congress a plan to collect contractor 
manpower data. DOD officials noted that developing a common data 
system to collect and house these data would be challenging given the 
different requirements from the military departments and components. 
Consequently, DOD does not expect to fully collect contractor manpower 
data until fiscal year 2016. DOD’s plan, however, does not establish 
milestones or specify how it will meet the legislative requirement to 
identify the requiring activity and the function and missions 
performed by the contractor. 

Military departments’ required reviews of their fiscal year 2009 
inventories of contracted services were incomplete. Navy headquarters 
officials had no assurance that their commands conducted the required 
reviews, and GAO found no evidence at the commands it contacted that 
the required reviews were conducted. Army and Air Force inventory 
reviews identified 1,935 and 91 instances, respectively, in which 
contractors were performing inherently governmental functions, though 
this variation may reflect differences in the departments’ approaches 
to conducting the reviews. In 8 of the 12 Army and Air Force cases GAO 
reviewed, contractors continued to perform functions the military 
departments identified as inherently governmental. The absence of 
guidance that provided for clear lines of responsibility for 
conducting, documenting, and addressing the results of the reviews 
contributed to these outcomes. Further, Army officials cited 
difficulty in hiring DOD civilians caused by DOD’s decision to freeze 
civilian full-time equivalents at fiscal year 2010 levels. DOD issued 
guidance in December 2011 that will require the military departments 
and components to certify that they have conducted the required 
reviews. The guidance, however, does not clearly establish lines of 
accountability and responsibility within the military departments and 
defense components for conducting the inventory reviews and addressing 
instances where contractors are identified as performing inherently 
governmental functions. 

What GAO Recommends: 

GAO recommends that the military departments and components develop 
guidance that provides for clear lines of authority, responsibility, 
and accountability for conducting an inventory review and that the 
Army and Air Force resolve known instances of contractors performing 
inherently governmental functions. DOD largely agreed with GAO’s 
recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-12-357. For more 
information, contact John P. Hutton at (202) 512-4841 or 
huttonj@gao.gov or Cary B. Russell at (404) 679-1808 or 
russellc@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

DOD Has Made Limited Progress in Addressing Limitations to Its 
Inventory Approach: 

Reviews of the Fiscal Year 2009 Inventories Were Incomplete and Did 
Not Fully Address Issues with Contractors Performing Inherently 
Governmental Functions: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Comments from the Department of Defense: 

Appendix III: GAO Contacts and Staff Acknowledgments: 

Tables: 

Table 1: Fiscal Year 2009 Spending on Services and Number of Instances 
and Types of Functions Where Contractors Were Identified by Military 
Departments to Be Performing Inherently Governmental Functions: 

Table 2: Status of Inherently Governmental Functions Reviewed: 

Figure: 

Figure 1: Relationship among the Inventory of Contracted Services, In-
sourcing, and Budget Documentation Requirements: 

Abbreviations: 

AT&L: Office of the Under Secretary of Defense for Acquisition, 
Technology, and Logistics: 

CMRA: Contractor Manpower Reporting Application: 

DOD: Department of Defense: 

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

FTE: full-time equivalent: 

P&R: Office of the Under Secretary of Defense for Personnel and 
Readiness: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

April 6, 2012: 

Congressional Committees: 

The Department of Defense (DOD), the federal government's largest 
purchaser of contractor-provided services, reported $204 billion in 
obligations for service contracts in fiscal year 2010. DOD relies on 
contractors to perform functions as varied as professional and 
management support, information technology support, and weapon system 
and intelligence support. While there are benefits to using 
contractors to perform services for the government, our work has shown 
that reliance on contractors to support core missions can place the 
government at risk of becoming overly reliant on contractors to 
perform closely associated with inherently governmental functions or 
creating circumstances in which contractors perform functions deemed 
inherently governmental.[Footnote 1] Over the past decade, our work 
has identified the need for DOD to obtain better data on its 
contracted services to enable it to make more strategic workforce 
decisions and ensure that it maintains appropriate control of 
government operations.[Footnote 2] DOD has put a number of efforts in 
place to gain better insights into its acquisition of services, but 
its efforts have had mixed success to date. 

In recent years, Congress has enacted legislation to improve the 
department's ability to manage its acquisitions of services; to make 
more strategic decisions about the right workforce mix of military, 
civilian, and contractor personnel; and to align resource needs better 
through the budget process to achieve that mix. For example, section 
2330a of title 10 of the U.S. Code requires DOD to annually compile 
and review an inventory of activities performed pursuant to contracts 
to help provide better insights into the number of contractor full-
time equivalents (FTE) providing services to the department and the 
functions they are performing. In addition, the inventories are to be 
used to identify, among other things, whether contractors were 
performing inherently governmental functions and to help inform 
workforce mix decisions. To date, DOD has submitted annual inventories 
to Congress for fiscal years 2007, 2008, 2009, and 2010. The fiscal 
year 2010 inventory was submitted on September 8, 2011. 

Section 803(c) of the National Defense Authorization Act for Fiscal 
Year 2010 directs GAO to report for 3 years on the inventory of 
activities performed pursuant to contracts for services that are to be 
submitted by the Secretary of Defense, in 2010, 2011, and 2012, 
respectively.[Footnote 3] Most recently, in January 2011 we assessed 
the approaches used to compile the fiscal year 2009 inventories and 
recommended that DOD develop a plan of action to facilitate the 
department's stated intent of collecting contractor manpower data and 
to address other limitations in its approach to meeting the statutory 
inventory requirements.[Footnote 4] For example, in the absence of a 
single department-wide data system that could provide the data 
necessary to respond to the legislative reporting requirements, most 
DOD components, other than the Army, relied on data from the Federal 
Procurement Data System-Next Generation (FPDS-NG). DOD acknowledged 
that using FPDS-NG as the main data source for the inventories has a 
number of limitations. These limitations include that FPDS-NG does not 
provide the number of contractor FTEs performing each service, 
identify the requiring activity, or allow for the identification of 
all services being procured. In contrast, the Army used its existing 
process, which incorporated contractor-reported data, including direct 
labor hours, from its Contractor Manpower Reporting Application 
(CMRA). Further, we reported that the military departments differed 
both in their approaches to reviewing the activities performed by 
contractors and the extent to which they used the inventories to 
inform workforce decisions. For example, the Army implemented a 
centralized approach to identify and assess the functions being 
performed by contractors and used such assessments to inform workforce 
decisions. In contrast, the Air Force and Navy used decentralized 
approaches that relied on major commands to review their contracted 
activities, but made relatively limited use of the inventories to 
inform their workforce decisions. 

To satisfy the mandate for 2011, we assessed (1) the progress DOD has 
made in addressing limitations when compiling the fiscal year 2010 
inventory of contracted services and in developing a strategy to 
obtain contractor manpower data and (2) the extent to which the 
military departments addressed issues with contractors performing 
inherently governmental functions identified during reviews of their 
fiscal year 2009 inventories. 

To assess the progress DOD has made in addressing limitations when 
compiling the fiscal year 2010 inventory and in developing a strategy 
to obtain contractor manpower data, we reviewed relevant guidance 
related to the inventory compilation processes used for fiscal year 
2010 and interviewed officials from the Office of the Under Secretary 
of Defense for Acquisition, Technology, and Logistics (AT&L), Office 
of Defense Procurement and Acquisition Policy; the Office of the Under 
Secretary of Defense for Personnel and Readiness (P&R); and the 
departments of the Army, Navy, and Air Force. We also reviewed plans 
submitted by the military departments and defense components to obtain 
contractor manpower data directly from contractors. 

To assess the extent to which the military departments addressed 
instances in which contractors were performing inherently governmental 
functions, we used data from the fiscal year 2009 inventory reviews, 
which was the most current review available at the time we began our 
work. To do so, we reviewed a total of 12 instances in which 
contractors were identified as performing inherently governmental 
functions. We selected two Army commands and one Air Force component 
based in part on the number of such instances they had identified. For 
the Army, we randomly selected 2 instances at the Training and 
Doctrine Command and 1 at the Acquisition Support Center. In addition, 
we reviewed 6 instances where contractors were performing the duties 
of Department of the Army systems coordinators. The Army's 2010 
acquisition review chartered by the Secretary of the Army determined 
these positions to be inherently governmental.[Footnote 5] The Air 
Force provided data to us in September 2011 that summarized the 
results of its inventory review process, including functions being 
performed by contractors that it identified as inherently 
governmental. From these data, we determined that the Air National 
Guard had the largest number of inherently governmental functions 
being performed by contractors, and we randomly selected 3 instances 
for review. We reviewed the relevant contract files and interviewed 
program and contracting officials responsible for the performance of 
these functions to determine what steps the military departments took 
once the review process identified the functions as inherently 
governmental. We did not independently assess whether the functions 
the military departments identified were in fact inherently 
governmental. While these cases illustrate the extent to which DOD 
took actions to resolve instances in which the military departments 
identified that contractors had performed inherently governmental 
functions, the results of our analysis are not generalizable to the 
more than 2,000 instances where contractors were performing inherently 
governmental functions, as identified by the military departments. 

At the time we initiated our work, Navy headquarters officials did not 
have the results of their fiscal year 2009 inventory review process 
available and subsequently acknowledged that they were uncertain 
whether their commands conducted the required reviews. Consequently, 
we considered DOD's fiscal year 2010 in-sourcing data that were 
reported to Congress in September 2011. From the Navy's in-sourcing 
data, we selected Fleet Forces Command and Space and Naval Warfare 
Systems Command for further review based on the number of positions 
they reported as in-sourced based on contractor performance of an 
inherently governmental function. We did not review individual Navy 
contracts because Space and Naval Warfare Systems Command officials 
told us that it was not possible to track the positions to specific 
contracts. Also, we found that the commands subsequently reported that 
the functions were not inherently governmental and were in-sourced for 
other reasons, such as to provide Navy personnel career progression 
opportunities. A detailed description of our scope and methodology is 
included in appendix I. 

We conducted this performance audit between July 2011 and April 2012 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Background: 

In part to improve the availability of information on and management 
of DOD's acquisition of services, Congress enacted section 2330a of 
title 10 of the U.S. Code, which required the Secretary of Defense to 
establish a data collection system to provide management information 
on each purchase of services by a military department or defense 
agency.[Footnote 6] The information to be collected includes, among 
other things, the total dollar amount of the purchase and the extent 
of competition provided in making the purchase. In 2008, Congress 
amended section 2330a to add a requirement for the Secretary of 
Defense to submit an annual inventory of the activities performed 
pursuant to contracts for services for or on behalf of DOD during the 
preceding fiscal year.[Footnote 7] The inventory is to include a 
number of specific data elements for each identified activity, 
including: 

* the function and missions performed by the contractor; 

* the contracting organization, the component of DOD administering the 
contract, and the organization whose requirements are being met 
through contractor performance of the function; 

* the funding source for the contract by appropriation and operating 
agency; 

* the fiscal year the activity first appeared on an inventory; 

* the number of full-time contractor employees (or its equivalent) 
paid for performance of the activity; 

* a determination of whether the contract pursuant to which the 
activity is performed is a personal services contract; and: 

* a summary of the information required by section 2330a(a) of title 
10 of the U.S. Code. 

As implemented by DOD, components are to compile annual inventories of 
activities performed on their behalf by contractors and submit them to 
AT&L, which is to formally submit a consolidated DOD inventory to 
Congress no later than July 31. Once compiled, the inventory is to be 
made public and within 90 days of the date on which the inventory is 
submitted to Congress, the secretary of the military department or 
head of the defense agency responsible for activities in the inventory 
is to review the contracts and activities for which they are 
responsible and ensure that any personal services contracts in the 
inventory were properly entered into and are being performed 
appropriately; that the activities in the inventory do not include 
inherently governmental functions; and to the maximum extent 
practicable, that activities on the list do not include any functions 
closely associated with inherently governmental functions.[Footnote 8] 

In January 2011, Congress amended section 2330a(c) of title 10 of the 
U.S. Code to specify that the Under Secretaries of Defense for 
Personnel and Readiness; Acquisition, Technology and Logistics; and 
the Office of the Comptroller are responsible for issuing guidance for 
compiling the inventory.[Footnote 9] Section 2330a(c) was also amended 
to state that DOD is to use direct labor hours and associated cost 
data reported by contractors as the basis for the number of contractor 
FTEs identified in the inventory, though it provided that DOD may use 
estimates where such data are not available and cannot reasonably be 
made available in a timely manner. 

Further, in December 2011, section 936 of the National Defense 
Authorization Act for Fiscal Year 2012 amended section 2330a of title 
10 of the U.S. Code to clarify the types of contracted services to be 
inventoried, including contracts for goods to the extent services are 
a significant component of the contract. In addition, it addressed the 
manner in which contractor FTEs are captured for inventory purposes. 
This section also directed the secretary of the military department or 
head of the defense agency responsible for activities in the inventory 
to develop a plan, including an enforcement mechanism and approval 
process, to: 

* provide for the use of the inventory by the military department or 
defense agency to aid in the development of its annual personnel 
authorization requests to Congress and in carrying out personnel 
policies; 

* ensure that the inventory is used to inform strategic workforce 
planning; 

* facilitate the use of the inventory for budgetary purposes; and: 

* provide for appropriate consideration of the conversion of 
activities to performance by government employees. 

Section 931 of the National Defense Authorization Act for Fiscal Year 
2012 also mandated that DOD use the inventories when making 
determinations regarding the appropriate workforce mix necessary to 
perform its mission.[Footnote 10] 

In addition to the laws and guidance that govern the compilation of 
the inventory and the inventory review processes, Congress also added 
section 2463 to title 10 of the U.S. Code, which requires P&R to 
develop guidelines and procedures to ensure that consideration is 
given to using DOD civilian employees to perform functions that are 
currently performed by a contractor--a process generally referred to 
as in-sourcing--and new functions. In particular, these guidelines and 
procedures are to provide special consideration for, among other 
things, in-sourcing functions closely associated with inherently 
governmental functions that contractors are currently performing, or 
having DOD civilian employees perform new requirements that may be 
closely associated with inherently governmental functions. Congress 
required the Secretary of Defense to make use of the inventories 
created under section 2330a(c) of title10 of the U.S. Code for the 
purpose of identifying functions that should be considered for 
performance by DOD civilian employees under this provision. DOD issued 
initial in-sourcing guidance in April 2008 and additional guidance in 
May 2009 to assist DOD components in implementing this legislative 
requirement.[Footnote 11] 

Further, the National Defense Authorization Act for Fiscal Year 2010 
provided for a new section 115b in title 10 of the U.S. Code that 
requires DOD to annually submit to the defense committees a strategic 
workforce plan to shape and improve the civilian workforce. Among 
other requirements, the plan is to include an assessment of the 
appropriate mix of military, civilian, and contractor personnel 
capabilities. P&R is responsible for developing and implementing the 
strategic plan in consultation with AT&L. The act also added section 
235 to title 10 of the U.S. Code, which requires the Secretary of 
Defense to include information in DOD's annual budget justification 
materials regarding the procurement of contracted services. 
Specifically, the legislation requires for each budget account to 
identify clearly and separately (1) the amount requested for the 
procurement of contract services for each DOD component, installation, 
or activity and (2) the number of contractor FTEs projected and 
justified for each DOD component, installation, or activity based on 
the inventory and associated reviews.[Footnote 12] DOD's fiscal year 
2013 budget guidance to DOD components requires the budget estimates 
to be informed by the fiscal year 2010 inventory for contracted 
services. 

Collectively, these statutory requirements mandate the use of the 
inventory and the associated review process to help identify functions 
for possible conversion from contractor performance to DOD civilian 
performance, support the development of DOD's annual strategic 
workforce plan, and specify the number of contractor FTEs included in 
its annual budget justification materials. Figure 1 illustrates the 
relationship among the related statutory requirements. 

Figure 1: Relationship among the Inventory of Contracted Services, In-
sourcing, and Budget Documentation Requirements: 

[Refer to PDF for image: illustration] 

Inventory of contracted services: 
* Activity performed by contractors; 
* Whether contract is for personal services; 
* Number of contractor FTEs performing activity; 
* Funding source for the contract; 
* Organizations for which activity performed. 

90-day review process: 

Candidates for in-sourcing: from: 
Identification of: 
* Inherently governmental functions; 
* Unauthorized personal services contract; 
* Closely supporting inherently governmental functions. 

Annual budget justification: from: 
Identification of: 
* Amount requested for contract services and number of contractor FTEs 
projected and justified for each budget account, by component, 
installation, or activity. 

Source: GAO analysis of 10 U.S.C. § § 235, 2330a, and 2463. 

[End of figure] 

DOD Has Made Limited Progress in Addressing Limitations to Its 
Inventory Approach: 

DOD made a number of changes to improve the consistency of the fiscal 
year 2010 inventory, but it continued to rely primarily on data 
collected in FPDS-NG for the inventory for all defense components 
other than the Army and the TRICARE Management Activity. As such, DOD 
acknowledged that the factors that limited the utility, accuracy, and 
completeness of using FPDS-NG remained. In November 2011, DOD 
submitted to Congress a plan that included instructions to the 
military departments and DOD components to document contractor FTEs 
and begin the collection of contractor manpower data. DOD officials 
noted that developing a common data system to collect and house 
contractor manpower data would be challenging given the different 
requirements of the military departments and components. Consequently, 
DOD does not expect to be able to fully collect contractor-reported 
direct labor information until fiscal year 2016. Further, DOD has not 
established milestones or time frames for the development and 
implementation of the data system nor has it specified how it will 
obtain the remaining required data, such as identifying the requiring 
activity and all functions and missions performed by the contractor, 
to meet the legislative inventory requirements. 

Some Refinements Were Made to the Fiscal Year 2010 Inventory, but 
Previously Identified Limitations with Using FPDS-NG Remain: 

DOD's approach to compiling its fiscal year 2010 inventory was similar 
to what DOD used for its fiscal year 2009 inventory. AT&L officials 
noted, however, that they had implemented several changes to improve 
the fiscal year 2010 inventory's utility. For example, AT&L did the 
following: 

* Centrally prepared and provided each component with a list that 
reflected the specific categories of services that were to be included 
in the inventory to provide greater consistency among DOD components. 
[Footnote 13] In contrast, DOD components compiled their own contract 
lists for the fiscal year 2009 inventories. 

* Increased the detail available on the services provided by using 
product and service codes at the four-digit level rather than at the 
broader, one-digit level used in the fiscal year 2009 inventory. 
[Footnote 14] For example, in the fiscal year 2009 inventory, 
contracts for dentistry services were reported under the broader 
category of medical services, which had an average cost of about 
$107,000 per FTE.[Footnote 15] In fiscal year 2010, dentistry services 
were reported separately from the medical services category with an 
average cost of $89,000 per FTE. 

* Updated labor rates to account for changes in service costs. These 
rates are based on costs, by product and service code, derived using 
fiscal year 2010 information from the Army's CMRA. 

In addition, DOD components were allowed to update or revise the 
contract lists provided by AT&L as appropriate. For example, Air Force 
officials stated that for the fiscal year 2010 inventory they used 
their financial system to cross-walk the contractual, financial, and 
requiring activity information with the information that was provided 
by AT&L. The updated information, according to Air Force officials, 
allowed them to include all Air Force-funded service contracts awarded 
by non-DOD agencies, provided greater fidelity in the inventory and 
enabled the Air Force to use the inventory to inform the development 
of budget justification materials. 

Further, AT&L in cooperation with DOD components aligned the product 
and service code functions to missions by organizing their spending 
into six portfolios developed by the Office of Defense Procurement and 
Acquisition Policy. AT&L officials stated that this alignment was 
intended to provide better organization and visibility into services 
being acquired and what missions they support. AT&L also sought to 
identify the "requiring activity" down to the major command level by 
using the "funding office" as a surrogate measure.[Footnote 16] AT&L 
officials, however, acknowledged that the requiring activity does not 
always correspond to the funding office. Collectively, according to 
AT&L officials, the additional level of detail will provide more 
accurate costs associated with the services being acquired and could 
potentially aid in better planning and budgeting for service 
acquisitions. 

In compiling DOD's 2010 inventory, however, DOD officials continued to 
rely primarily on data collected in FPDS-NG for all defense components 
other than the Army and the TRICARE Management Activity. As such, DOD 
officials acknowledged that the factors that limited the utility, 
accuracy, and completeness of using FPDS-NG remained. These 
limitations include not being able to identify and record more than 
one type of service purchased for each contracting action entered into 
the system, not being able to capture any services performed under 
contracts that are predominantly for supplies, not capturing service 
contracts awarded on behalf of DOD by non-DOD agencies, not being able 
to identify the requiring activity specifically, and not being able to 
determine the number of contractor FTEs used to perform each service. 
[Footnote 17] 

As with the fiscal year 2009 inventory, AT&L authorized the Army to 
continue to use its CMRA data system.[Footnote 18] CMRA is intended to 
capture data directly reported by contractors on each service 
performed at the contract line item level, including information on 
the direct labor dollars, direct labor hours, total invoiced dollars, 
the functions and mission performed, and the Army unit on whose behalf 
contractors are performing the services. In instances where 
contractors are performing different services under the same order, or 
are performing services at multiple locations, they can enter 
additional records in CMRA to capture information associated with each 
type of service or each location. Under its approach, unlike the Air 
Force and the Navy, the Army included all categories of research and 
development services in its inventory and identified the services 
provided under contracts for goods. To report the number of contractor 
FTEs, the Army indicated that it divided the number of direct labor 
hours reported by a contractor in CMRA for each service performed by 
2,088, the number of labor hours in a federal employee work year. For 
other data elements in its inventory, such as the funding source and 
contracting organization, the Army relied on the Army Contract 
Business Intelligence System and updates from resource managers, 
contracting officer's representatives, and other officials. 

Overall, DOD reported that in fiscal year 2010, 23 components 
submitted inventories and estimated that about 623,000 contractor FTEs 
provided services to DOD under contracts with obligations totaling 
about $121 billion. In comparison, for fiscal year 2009, DOD reported 
that 22 components submitted inventories and estimated that about 
767,000 contractor FTEs provided services to DOD under contracts with 
obligations totaling about $155 billion. DOD officials cautioned 
against comparing the number of contractor FTEs for fiscal year 2009 
and fiscal year 2010 given the differences in the estimating formula, 
the changes in reporting for the research and development category, 
and other factors. 

DOD Efforts to Collect Contractor Manpower Data: 

Over the past year, DOD initiated efforts to collect manpower data 
directly from contractors. These efforts were, in part, in response to 
Congressional direction in section 8108 of the Fiscal Year 2011 
Defense Appropriations Act, which made $2,000,000 available to both 
the Air Force and the Navy for leveraging the Army's CMRA system to 
document contractor FTEs and meet all the requirements of section 
2330a(e) and section 235 of title 10 of the U.S. Code.[Footnote 19] It 
further required the military departments and DOD components to submit 
their plans for reporting contractor FTEs no later than June 15, 2011. 
DOD did not meet this deadline, but it submitted an interim response 
to Congress in July 2011 detailing a time frame for DOD components to 
complete and submit their individual plans. 

In August 2011, the Navy and the Air Force submitted their plans to 
leverage the Army's CMRA data system. In their plans, the Navy and the 
Air Force indicated that they would begin developing requirements for 
a contractor manpower data collection system, but noted that 
implementation would not begin until the end of fiscal year 2012 or 
later. Navy and Air Force officials said they wanted to ensure that 
the data collection system they implemented had the necessary 
capability to inform other DOD workforce initiatives, such as in-
sourcing, and to meet the information technology requirements set by 
their military departments. Subsequently, in September 2011, DOD 
components started submitting their plans for reporting contractor 
FTEs. Some DOD components noted that they would begin modifying 
existing and future contracts to require the collection of manpower 
data directly from contractors starting as early as October 2011 and 
that it would take about a year to modify all their existing 
contracts. Components also indicated that after the contracts were 
modified, they would begin collecting the data by conducting manual 
data calls, implementing the Army's CMRA system, or using other 
internal processes. The Navy did not include a time frame for 
modifying contracts, while the Air Force estimated that it would take 
approximately 5 years to modify all its contracts. As of February 
2012, 43 of the 44 DOD components, including the Army, Navy, and Air 
Force, had submitted their plans to Congress. 

Subsequent to submitting these individual plans, DOD continued to 
revise its approach, as both P&R and AT&L officials expressed concerns 
about aspects of the timing and approach reflected in the components' 
plans. For example, P&R officials noted that the Navy's August 2011 
plan to leverage the Army's system to collect manpower data directly 
from contractors "lacks clear and decisive actions and milestones to 
meet the requirement." Further, AT&L officials noted that requiring 
contractors to provide contractor manpower data will require approval 
from the Office of Management and Budget, as provided for under the 
Paperwork Reduction Act.[Footnote 20] 

In November 2011, DOD issued a department-wide plan intended to meet 
the legislative inventory requirements, including those for collecting 
contractor manpower data and documenting contractor FTEs. DOD plans to 
establish a common data system to collect and house contractor 
manpower data for the entire department and develop a comprehensive 
instruction on the development, review, and use of the contracted 
services inventories. To do so, the Office of the Deputy Chief 
Management Officer, P&R, and other stakeholders formed a working group 
to help develop and implement the data system and ensure that it 
leverages existing solutions, such as the Army's CMRA system. DOD's 
November 2011 plan noted that the Army currently has reporting 
processes and an infrastructure in place to comply with section 2330a 
of title 10 of the U.S. Code. The plan, however, indicates that DOD 
will not have a common data system in place throughout the department 
until fiscal year 2016. P&R officials indicated that although 
discussions among the working group have begun, obtaining concurrence 
from military departments and components on the capability of a common 
data system may delay implementation. 

As part of these efforts, DOD submitted an emergency processing 
request to the Office of Management and Budget on the Paperwork 
Reduction Act on December 16, 2011. DOD officials subsequently were 
informed that this request would likely not be approved. Consistent 
with the requirements of the Paperwork Reduction Act, DOD posted a 
notice in the Federal Register on February 7, 2012, seeking public 
comment on its plans to begin collecting direct labor information and 
other data on DOD contracts. DOD indicated that after it reviews the 
comments received by the March 23 deadline, a number of other actions 
will need to be taken before DOD can begin collecting such data. DOD 
officials further indicated that they will need to assess the impact 
these events will have on the actions and timeframes identified in 
their November 2011 plan. The Army, which previously received approval 
from the Office of Management and Budget to collect certain contract 
data from contractors using its CMRA system, received a 3-year 
extension of this approval on December 15, 2011. 

P&R and AT&L issued guidance on the submission and review of the 
fiscal year 2011 inventory on December 29, 2011. This guidance 
indicates that for fiscal year 2011, the Office of Defense Procurement 
and Acquisition Policy will provide a data set--at the four-digit 
product and service code level derived from FPDS-NG--to each DOD 
component with acquisition authority. Further, the guidance provides a 
different formula for DOD components to use for estimating the number 
of contractor FTEs paid for the performance of an activity based on 
the amount of direct labor hours provided by a contractor under each 
product and service code. Since the Navy, the Air Force, and most DOD 
components do not collect direct labor hours directly from 
contractors, the guidance indicates that DOD components may use the 
best available data or a variety of methodologies, singularly or in 
combination, to estimate direct labor hours. These methodologies 
include: 

* collecting direct labor hour information from contractors, 

* collecting direct labor hours as reported by the contracting 
officer's representative for the service during fiscal year 2011, 

* referencing the independent government cost estimate or contractor 
technical proposals to extrapolate hours for services provided in 
fiscal year 2011, 

* reporting information collected from contract invoices, or: 

* calculating the number of contractor FTEs by using information 
extrapolated from the manpower data collected by the Army from its 
contractors. 

Under this plan, the Army will continue to use its CMRA system and 
other established tools and processes for preparing and submitting its 
inventory. 

DOD officials noted that DOD intends to develop a comprehensive DOD 
instruction for the development, review, and use of the service 
contract inventories. This instruction, which DOD officials indicate 
will be issued to inform the fiscal year 2013 inventory, is expected 
to shift primary responsibility for the inventories from the 
acquisition community to the manpower/personnel community at each DOD 
component. DOD officials also indicated that the instruction will 
require that in compiling the inventory of contracted services, all 
DOD activities are expected to report all services provided in support 
of or to benefit a DOD component, regardless of the source of the 
funding or acquisition agent. Additionally, all DOD activities will 
include in new contracts, or task and delivery orders, the requirement 
to collect manpower information directly from contractors. 

In our January 2011 report, we recommended that DOD develop a plan of 
action, including anticipated time frames and necessary resources, to 
facilitate the department's intent of collecting manpower data and to 
address other limitations in its current approach to meeting inventory 
requirements.[Footnote 21] DOD concurred with our recommendations. 
DOD's November 2011 plan and December 2011 guidance represent steps in 
the right direction to meet the legislative requirements and implement 
our recommendation, but neither document contains milestones or time 
frames for the development and implementation of a common software and 
hardware data system to collect and house contractor manpower data. 
Further, while these efforts address the collection of contractor 
manpower data, they do not specify how DOD will obtain the remaining 
required data, such as identifying the requiring activity and all 
functions and missions performed by the contractor, to meet the 
legislative inventory requirements. 

Reviews of the Fiscal Year 2009 Inventories Were Incomplete and Did 
Not Fully Address Issues with Contractors Performing Inherently 
Governmental Functions: 

Military departments' required reviews of their fiscal year 2009 
inventories were incomplete. Navy headquarters officials had no 
assurance that their commands conducted the required reviews, and we 
found no evidence at the Navy commands we contacted that the required 
reviews were conducted. Army and Air Force reviews of their contracted 
services identified 2,026 instances in which contractors were 
performing inherently governmental functions. We found that 
contractors continued to perform functions that were identified as 
inherently governmental in 8 of the 12 Army and Air Force cases we 
reviewed. In some of these cases, the Army took steps in response to 
the inventory review process, such as transferring responsibility to 
military personnel. In contrast, we also found that some contractors 
continued to perform inherently governmental functions. For example, 
Army officials cited difficulty in hiring DOD civilians caused by 
DOD's decision to freeze civilian FTE levels at the fiscal year 2010 
level as hindering their ability to resolve instances identified 
during the inventory review process. Moreover, contracting and program 
officials were unaware that the inventory review process had 
identified functions under their contracts as inherently governmental. 
The absence of guidance that provided for clear lines of 
responsibility and accountability for conducting, documenting, and 
addressing the results of the reviews contributed to these outcomes. 

Military Departments' Reviews of the Fiscal Year 2009 Inventories Were 
Incomplete: 

The military departments' reviews of the fiscal year 2009 inventories 
were incomplete as the Navy did not conduct a review. The Army and Air 
Force identified 1,935 and 91 instances, respectively, in which 
contractors were performing inherently governmental functions. The 
variation in the number of cases reported by the Army and the Air 
Force may reflect differences in their approaches to conducting the 
inventory reviews. Table 1 summarizes the number of inherently 
governmental functions identified by the military departments through 
their fiscal year 2009 inventory reviews. 

Table 1: Fiscal Year 2009 Spending on Services and Number of Instances 
and Types of Functions Where Contractors Were Identified by Military 
Departments to Be Performing Inherently Governmental Functions: 

Military department: Army; 
Fiscal year 2009 spending on services: $43.0 billion[A]; 
Number of instances of contractors performing inherently governmental 
functions: 1,935; 
Examples of inherently governmental functions being performed by 
contractors: 
* Engineering and technical services; 
* Program management; 
* Professional, administrative, and management support services. 

Military department: Air Force; 
Fiscal year 2009 spending on services: $33.1 billion; 
Number of instances of contractors performing inherently governmental 
functions: 91[B]; 
Examples of inherently governmental functions being performed by 
contractors: 
* Engineering and technical services; 
* Program management; 
* Professional, administrative, and management support services. 

Military department: Navy; 
Fiscal year 2009 spending on services: $39.9 billion; 
Number of instances of contractors performing inherently governmental 
functions: Did not conduct an inventory review; 
Examples of inherently governmental functions being performed by 
contractors: N/A. 

Sources: DOD June 2010 summary report to Congress on the fiscal year 
2009 service contract inventory and GAO analysis of Army, Air Force, 
and Navy data. 

[A] Army data reflect invoiced dollar amounts reported in CMRA rather 
than obligations reported in FPDS-NG. 

[B] The Air Force's fiscal year 2009 inventory review included service 
contracts with obligations through the end of August 2010. 

[End of table] 

The Navy issued guidance in September 2010 requiring its commands to 
conduct a fiscal year 2009 inventory review. The commands were to 
provide a letter within 45 days that certified that they had completed 
a review, identified the number of contracts with inherently 
governmental functions, and provided a corrective action plan. We 
found no evidence at the commands we contacted that the required 
reviews were conducted. For example, Fleet Forces Command officials 
were not aware of a required inventory review and did not recall 
guidance being issued. Similarly, officials from the Navy's Space and 
Naval Warfare Systems Command stated that they did not recall 
receiving guidance from Navy headquarters to conduct a review of the 
fiscal year 2009 inventory. Navy headquarters officials did not follow 
up to ensure that the required reviews were completed and acknowledged 
that they could not verify whether Navy commands completed the fiscal 
year 2009 inventory review.[Footnote 22] 

The Army used a centralized approach that included a headquarters-
level review of all functions performed by contractors. The Army, for 
its headquarters-level review, established the Panel for Documentation 
of Contractors, which consists of officials from the Office of the 
Assistant Secretary of the Army for Manpower and Reserve Affairs along 
with headquarters officials from the acquisition and manpower planning 
communities. Army guidance directs the commands to provide data to the 
panel, including descriptions of the functions being performed by 
contractors, the organizational unit for which each function is 
performed, and an assessment of whether those functions are inherently 
governmental. The panel reviews information provided by the commands 
and makes an independent determination to assess whether the functions 
are inherently governmental. According to panel officials, function 
descriptions do not always provide insight into the day-to-day 
activities of contractors, sometimes making it difficult to accurately 
distinguish inherently governmental functions from those that are 
closely associated with inherently governmental functions. In 
instances where there was a difference of opinion on the appropriate 
assessment of a function, however, panel and command officials 
reported that they engaged in further discussion in order to reach 
agreement. 

Additionally, the Army's final 2010 acquisition review chartered by 
the Secretary of the Army identified the Army's systems coordinator 
function as inherently governmental.[Footnote 23] The systems 
coordinator responsibilities include representing program managers at 
the Pentagon, acting as a liaison with Congress, preparing principal 
staff officers for systems reviews, writing background papers for 
military staff, and representing system program managers on integrated 
product teams. We found that the panel reviewed 19 of the 26 instances 
identified by the Army during the 2009 inventory review where 
contractors were performing the systems coordinator function. An Army 
manpower official stated that the panel process did not identify the 
remaining 7 instances. 

In contrast, we found that the Air Force used a decentralized 
inventory review approach, which delegated primary responsibility for 
the review of its inventory to its major commands and components. In 
January 2010, the Secretary of the Air Force issued guidance 
instructing its major commands and components to conduct an initial 
review of its fiscal years 2008 and 2009 inventories of contracted 
services. According to an Air Force inventory official, a headquarters 
review of the initial information submitted by the commands found that 
approximately 40 percent of the fiscal year 2009 contracts included 
for review did not contain adequate responses to the required review 
elements. Because of challenges experienced during the initial review, 
the Secretary of the Air Force issued additional guidance in October 
2010 requiring major commands to complete the review of fiscal year 
2009 service contracts that may have been missed. To do so, the Air 
Force headquarters-level acquisition office provided each major 
command and component with a spreadsheet to review that contained its 
portion of the department's service contracts from the beginning of 
fiscal year 2009 through August 2010. This guidance instructed the 
organizations to determine, among other things, whether the activity 
performed under the contract was an inherently governmental function. 
In addition to the inventory review, however, this effort was to help 
implement the Secretary of Defense's direction to reduce service 
support contractors, and inform budget justification initiatives as 
they pertained to contractor employees. 

As a result of this process, the Air Force identified 91 instances of 
contractors performing inherently governmental functions, the majority 
of those instances for work performed for the Air National Guard and 
the Air Force Space Command. Financial management and contracting 
officials responsible for conducting the reviews at the Air National 
Guard and Air Force Space Command, however, cited concerns with the 
accuracy and completeness of the inventory review data. For example, 
at the Air National Guard, the inventory review efforts were conducted 
by individuals within the financial management office. During the 
course of the inventory reviews, however, at least one staff member 
responsible for the inventory review had left the organization. When 
we spoke to an Air National Guard official in December 2011, she noted 
that when she received the spreadsheet from Air Force headquarters, 37 
functions on the list were already identified as inherently 
governmental. Air Force officials, however, provided us with 
documentation to indicate that other individuals within the Air 
National Guard had made the determinations in earlier reviews of the 
inventory data, but these determinations were not communicated to the 
official. Further, officials at both commands stated that the time Air 
Force headquarters allowed for the review was not sufficient to review 
each contract and make an informed determination. 

Army and Air Force Did Not Ensure That Functions They Identified as 
Inherently Governmental Were Resolved: 

By reviewing their inventories of contracted services, the Departments 
of the Army and Air Force identified instances in which contractors 
were performing inherently governmental functions, but the departments 
did not ensure that corrective actions were fully implemented. Several 
options are available to DOD when contractors are in fact performing 
such functions, including modifying the statement of work to ensure 
that the work performed is not inherently governmental, assigning 
responsibility for that work to government personnel, or divesting or 
discontinuing the work. In 8 of the 12 cases we reviewed at the Army 
and the Air Force, however, contractors continued to perform functions 
that the military departments had identified as inherently 
governmental during the fiscal year 2009 inventory reviews (see table 
2). 

Table 2: Status of Inherently Governmental Functions Reviewed: 

Military department/command: Army; Acquisition Support Center; 
Contract number/task order: W15P7T-06-D-E402/0007; 
Function description: Systems coordinator; 
Inherently governmental functions still performed by contractors at 
the time of our review? Yes. 

Military department/command: Army; Acquisition Support Center; 
Contract number/task order: W15P7T-06-D-E402/0060; 
Function description: Systems coordinator; 
Inherently governmental functions still performed by contractors at 
the time of our review? Yes. 

Military department/command: Army; Acquisition Support Center; 
Contract number/task order: W15P7T-06-D-E406/0014[A]; 
Function description: Systems coordinator; 
Inherently governmental functions still performed by contractors at 
the time of our review? Yes. 

Military department/command: Army; Acquisition Support Center; 
Contract number/task order: W15P7T-06-D-E406/0014[A]; 
Function description: Systems coordinator; 
Inherently governmental functions still performed by contractors at 
the time of our review? No. 

Military department/command: Army; Acquisition Support Center; 
Contract number/task order: W15QKN-06-C-0234; 
Function description: Engineering support; 
Inherently governmental functions still performed by contractors at 
the time of our review? Yes. 

Military department/command: Army; Acquisition Support Center; 
Contract number/task order: W31P4Q-05-A-0024/0036; 
Function description: Systems coordinator; 
Inherently governmental functions still performed by contractors at 
the time of our review? Yes. 

Military department/command: Army; Acquisition Support Center; 
Contract number/task order: W91260-09-D-0003/1035; 
Function description: Systems coordinator; 
Inherently governmental functions still performed by contractors at 
the time of our review? No. 

Military department/command: Army; Training and Doctrine Command; 
Contract number/task order: W911S0-09-P-0090; 
Function description: Information technology project manager; 
Inherently governmental functions still performed by contractors at 
the time of our review? Yes. 

Military department/command: Army; Training and Doctrine Command; 
Contract number/task order: W912SU-04-P-0067; 
Function description: Warehouse supervisor; 
Inherently governmental functions still performed by contractors at 
the time of our review? No. 

Military department/command: Air Force; Air National Guard; 
Contract number/task order: W912JB-09-D-4000/4005; 
Function description: Administrative support; 
Inherently governmental functions still performed by contractors at 
the time of our review? Yes. 

Military department/command: Air Force; Air National Guard; 
Contract number/task order: W9133L-06-C-0009; 
Function description: Financial services; 
Inherently governmental functions still performed by contractors at 
the time of our review? No. 

Military department/command: Air Force; Air National Guard; 
Contract number/task order: W9133L-06-C-0011; 
Function description: Financial services; 
Inherently governmental functions still performed by contractors at 
the time of our review? Yes. 

Source: GAO analysis of Army and Air Force data. 

[A] This task order contained two systems coordinator functions. 

[End of table] 

In 4 cases, contractors are no longer performing the functions that 
had been identified as inherently governmental. In 3 of these cases, 
according to officials, the Army took steps in response to the 
inventory review process, including ensuring that the work was 
performed by government personnel. In the fourth case, contracting and 
program officials were not aware that this function had been 
identified as inherently governmental during the review process, but 
noted that the function had already been in-sourced by the time they 
became aware of the determination. 

* In 2 instances where contractors were performing the Department of 
the Army systems coordinator function under task orders, program 
officials reported that the Army transferred responsibilities for 
these functions to military personnel. In one of these cases, a 
contracting official noted that he had initially limited the period of 
performance on the task order to a 1-year base period with 6-month 
options because of concern at the time of award that this function 
was, at the very least, closely associated with inherently 
governmental functions and because he was aware that the Army wanted 
to convert this function to a civilian position. A military officer 
replaced the contractor on October 31, 2011, when the first 6-month 
option expired. 

* In another case involving a $2.1 million warehouse support contract 
at Army's Training and Doctrine Command, a command official clarified 
that the function performed by the contractor was not inherently 
governmental. She further explained that she believes the performance 
of this service was identified as such by the Panel for Documentation 
of Contractors because the function description included the term 
"warehouse supervisor". The command official responsible for tracking 
resolutions determined that the function in question involved a 
contractor supervising his own employees not other government 
employees. She reported that it took 2 years working with panel 
officials to reach agreement and revise the panel's determination. 

* The remaining case involved a contractor providing analytical 
support for planning, programming, and budgeting matters under a 
$470,000 contract at the Air Force's Air National Guard. In this case, 
we interviewed a program official and a contracting official in 
November 2011 and December 2011, respectively, to determine if they 
were aware that the inventory review process had identified functions 
under this contract as inherently governmental. They stated that they 
were not aware of this determination, but noted that the contract had 
expired in September 2010. The program official further noted that Air 
National Guard had in-sourced all functions previously performed under 
this contract. 

In 8 of the cases we reviewed, however, contractors were still 
performing inherently governmental functions, as identified during the 
inventory review process, at the time of our review, for a variety of 
reasons. For example: 

* In 4 instances where it had been determined that contractors had 
been performing the Department of the Army systems coordinator 
function, contractor employees continued to perform these duties. 
According to an Acquisition Support Center official, in June 2011 the 
command requested authorization to replace the contractor employees 
with military personnel. He noted, however, that the command had not 
received authorization at the time of our review. He explained, the 
alternative is to in-source the function and fill the positions with 
civilian personnel. A function, however, may now only be in-sourced if 
the Secretary of the Army personally approves it. In February 2011, 
the Secretary of the Army suspended all approved in-sourcing actions 
that had not yet been completed and instituted a new in-sourcing 
request and approval process. The command official reported that 
preparing the in-sourcing package, which includes a concept plan, a 
workload and funding profile analysis, a business case, and a 
contractor inventory review, is a lengthy process, but acknowledged 
that the command had not submitted this package as of January 2012. 

* In 2 other cases--1 at the Army's Acquisition Support Center and 1 
at the Air Force's Air National Guard--contracting and program 
officials were unaware that the inventory review process had 
identified functions under their contracts as inherently governmental. 
One case involved a $1.1 million contract at Acquisition Support 
Center for engineering support in which the contractor employee 
provided technical expertise and coordination with program office 
staff, other military departments, Congress, and private companies, 
among other duties. The other case involved a $409,000 Air National 
Guard contract for financial analytical support. In both cases, 
program officials stated that even though the original contracts had 
expired, contractors continued to perform the same functions under 
subsequent contracts. 

* In another case at the Air National Guard, the inventory review 
process identified a function under a $120,000 task order to provide 
advice and advocacy on Air National Guard positions and programs to 
the Air Staff and other Air Force major commands as inherently 
governmental. In this case, the Director of the Contracting Division, 
with responsibility for this task order, stated that she first became 
aware that the function was identified as inherently governmental in 
October 2010 but disagreed with the determination. She was not aware 
of any process in the Air Force or Air National Guard to resolve the 
disagreement. When the task order expired in May 2011, she renewed the 
function under a separate task order. 

* In the remaining case, involving a $6.1 million information 
technology support contract at Army Training and Doctrine Command's 
Defense Language Institute, a "project manager" function had been 
identified as inherently governmental. A command official noted that 
the contractor employee was no longer performing the function because 
the contract had expired in March 2010. When we reviewed contract 
documents, however, we found that the contract had been extended to 
March 2011. Further, the Defense Language Institute had entered into a 
memorandum of agreement with the Naval Postgraduate School to provide 
the same technology support services. According to a program official, 
a contractor employee is still performing the same function under a 
Navy contract. 

In addition to our case studies, Army Manpower and Reserve Affairs 
officials acknowledged that they are aware of at least 1 instance, 
included in the Panel for Documentation of Contractors review process, 
in which contractors continue to perform functions that the Army 
identified as inherently governmental. In this case, 47 contractors, 
including 2 investigators, make up the entirety of a police force at 
U.S. Army Kwajalein Atoll in the Marshall Islands. These contractors 
perform all duties expected from a police force, including patrolling, 
issuing citations, making arrests, and investigating misdemeanors. 
According to Manpower and Reserve Affairs officials, command officials 
disagreed with the determination, but on February 22, 2010, the Army 
Deputy General Counsel for Operations and Personnel issued a legal 
opinion that concluded that certain functions performed by the 
contractors were inherently governmental and could not be performed by 
a contractor. According to Manpower and Reserve Affairs officials, 
contractors continue to perform these inherently governmental 
functions. They also noted that DOD's decision to freeze civilian FTEs 
at fiscal year 2010 levels is an impediment to resolving the 
performance of these inherently governmental functions by contractors. 

To address compliance issues with the inventory review and provide 
additional guidance on the process, the Acting Under Secretaries of 
Defense for Acquisition, Technology, and Logistics and Personnel and 
Readiness, jointly issued guidance for the fiscal year 2011 inventory 
review on December 29, 2011. The guidance specifies that military 
departments and defense components must review at a minimum 50 percent 
of all contracts, task orders, delivery orders, or interagency 
acquisition agreements listed in the military departments' and defense 
components' inventories for a given fiscal year. While conducting the 
reviews of contracts, the guidance states that the military 
departments and defense components should also review how the 
contracts are performed and administered, as well as the 
organizational environment in which they are being performed. After a 
review is complete, the military departments and defense components 
will now be required to certify that they have completed a review and 
submit a letter to P&R with the following information: 

* an explanation of the methodology used to conduct the review and 
criteria for selection of contracts to review; 

* the results of the review, including identifying any inherently 
governmental functions, closely associated with inherently 
governmental functions, or unauthorized personal services contracts; 

* a plan for divesting or realigning functions for contracts that were 
identified as inherently governmental; and: 

* an explanation of the steps taken to ensure appropriate government 
control and oversight for functions that were identified as closely 
associated with inherently governmental. 

The guidance, however, does not clearly establish lines of 
accountability and responsibility within the military departments and 
defense components for conducting the inventory reviews and addressing 
instances where contractors are identified as performing inherently 
governmental functions. 

Conclusions: 

Congress has mandated that DOD use the inventory of contracted 
services and the associated review process to help DOD ensure that 
contractors are performing work that is appropriate, to support 
development of DOD's annual strategic workforce plan, and to specify 
the number of contractor FTEs included in DOD's annual budget 
justification materials. As such, it is essential that the inventories 
contain comprehensive, accurate, and actionable data for each service 
performed. 

DOD, with the exception of the Army, has much further to go in 
addressing the requirements for compiling and reviewing the 
inventories of contracted services. DOD made incremental improvements 
to its process to address some of the previously identified 
limitations when it compiled its fiscal year 2010 inventory, but it 
has not resolved the fundamental issue of how to collect the required 
data to meet the legislative inventory requirements, including 
manpower data directly from contractors. DOD took a significant step 
in November 2011 to identify objectives for collecting contractor 
manpower data from contractors, but DOD indicates that implementation 
will not be complete until 2016. Given the potential value and 
importance of compiling a complete and accurate inventory, it would 
benefit DOD to move more expeditiously. DOD's plan, however, does not 
specify time frames or milestones to measure its progress toward 
developing an enterprisewide data system to collect contractor 
manpower data, even though it acknowledged that reaching agreement on 
that approach would be challenging. We therefore reiterate our prior 
recommendation that DOD's plans include milestones and time frames to 
gauge progress in meeting the inventory requirements. 

The Army and Air Force conducted inventory reviews, but the wide 
variation in the number of instances of contractors performing 
inherently governmental functions raises the question as to how much 
of the variation is due to the different approaches used to conduct 
the reviews. Further, the Navy was unable to provide assurance that it 
actually conducted the statutorily required review of its fiscal year 
2009 inventory. This underscores the need for greater accountability 
and management attention. The absence of guidance, at all levels, 
providing clear lines of responsibility for conducting, documenting, 
and addressing issues identified during the fiscal year 2009 inventory 
review process contributed to instances in which contractors continued 
to perform functions identified as being inherently governmental in 8 
of the 12 Army and Air Force cases we reviewed. Army officials also 
cited challenges with DOD's decision to freeze civilian FTEs at fiscal 
year 2010 levels and the in-sourcing process as complicating their 
efforts to resolve issues identified during their inventory reviews, 
including those instances at Kwajalein Atoll. Such challenges, 
however, do not justify the continued use of contractors to perform 
inherently governmental functions, in several cases more than a year 
after the issue was initially identified. DOD's December 2011 guidance 
will require the military departments and defense components to 
certify that they have conducted the required reviews, but the 
guidance does not clearly establish lines of accountability and 
responsibility within the military departments and defense components 
for doing so. DOD's experience in conducting the fiscal year 2009 
review demonstrates the importance of guidance that provides for clear 
lines of authority, responsibility, and accountability if DOD is to 
use the inventories to help identify and mitigate the risks posed by 
using contractors to perform certain functions. 

Recommendations for Executive Action: 

To address these issues we are making the following three 
recommendations: 

To improve the execution and utility of the inventory review process, 
we recommend that the Secretary of Defense ensure that the military 
departments and defense components issue guidance to their commands 
that provides clear lines of authority, responsibility, and 
accountability for conducting an inventory review and resolving 
instances where functions being performed by contractors are 
identified as inherently governmental functions. 

To ensure that the six instances we reviewed in which the Army 
identified that contractors were still performing functions it deemed 
inherently governmental, as well as those at Kwajalein Atoll, have 
been properly resolved, we recommend that the Secretary of the Army 
review these functions, determine the status of actions to resolve the 
issues, and, as appropriate, take necessary corrective actions. 

To ensure that the two instances we reviewed where contractors were 
still performing functions the Air Force had previously identified as 
inherently governmental are properly resolved, we recommend that the 
Secretary of the Air Force review these functions, determine the 
status of actions to resolve the issues, and, as appropriate, take 
necessary corrective actions. 

Agency Comments and Our Evaluation: 

DOD provided us with written comments on a draft of this report, 
stating that it largely agreed with our recommendations and is 
committed to continue to improve its accounting for contracts for 
services. More specifically, DOD agreed with two recommendations and 
partially concurred with one recommendation. DOD's written response is 
reprinted in appendix II. DOD also provided technical comments, which 
were incorporated as appropriate. 

DOD concurred with our recommendations to address instances we 
reviewed in which the Army and Air Force identified that contractors 
were still performing functions deemed inherently governmental. DOD 
noted that it will work with the Army and Air Force to ensure 
corrective actions, as appropriate and necessary, are taken. 

DOD partially concurred with our recommendation that the Secretary of 
Defense ensure that the military departments and defense components 
issue guidance to their commands that provides for clear lines of 
authority, responsibility, and accountability for conducting an 
inventory review, and for resolving instances where functions being 
performed by contractors are identified as inherently governmental. 
DOD agreed it was imperative for the components to do so, but noted 
that its December 2011 guidance, while not prescribing individual 
management practices, requires component heads to certify completion 
of and results from the reviews. Further, DOD noted that as defense 
components vary in size and mission, the need for individual 
components to have organization-specific guidance should not be 
mandated but rather determined by each component head. 

Our recommendation does not intend that DOD prescribe individual 
component management practices or mandate organization-specific 
guidance. We agree that each component should institute guidance that 
fits its mission and needs and that the precise nature of each 
component's guidance may vary in scope and detail. Our work found, 
however, that the absence of guidance at the military department-level 
that provides for clear lines of authority, responsibility and 
accountability contributed to the shortcomings and challenges 
encountered during the military departments' review of their fiscal 
year 2009 inventories. Given these results, we continue to believe 
that it would be prudent for DOD to obtain sufficient assurance that 
the military departments' and components' guidance covers the areas--
including those enumerated above--that provide the foundation for 
conducting a meaningful review. DOD's December 2011 guidance, while a 
step in the right direction, does not provide such assurances. 

DOD also noted in its comments that the Office of Management and 
Budget had indicated via e-mail that it would disapprove DOD's request 
for an emergency waiver to the Paperwork Reduction Act. Consequently, 
consistent with the requirements of the Paperwork Reduction Act, DOD 
posted a notice in the Federal Register in February 2012 seeking 
public comment on its plans to begin collecting direct labor 
information and other data on DOD contracts. DOD indicated that after 
it reviews the comments received by the March 23 deadline, a number of 
other actions will need to be taken before DOD can begin collecting 
such data. As a result, DOD officials told us they will need to assess 
the impact these events will have on the actions DOD identified in its 
November 2011 plan and, as such, will not be able to develop 
additional milestones until this is done. We modified the text in the 
report to reflect this updated information. 

We are sending copies of this report to the Secretary of Defense, 
Secretary of the Air Force, Secretary of the Army, and interested 
congressional committees. In addition, the report is available at no 
charge on the GAO website at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact us at (202) 512-4841 or huttonj@gao.gov or (404) 679-1808 or 
russellc@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 who made contributions to this report are listed in 
appendix III. 

Signed by: 

John P. Hutton: 
Director, Acquisition and Sourcing Management: 

Signed by: 

Cary B. Russell:
Acting Director, Defense Capabilities and Management: 

List of Committees: 

The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate: 

The Honorable Howard P. McKeon:
Chairman:
The Honorable Adam Smith:
Ranking Member:
Committee on Armed Services:
House of Representatives: 

[End of section] 

Appendix I: Scope and Methodology: 

Section 803(c) of the National Defense Authorization Act for Fiscal 
Year 2010 directs GAO to report for 3 years on the inventory of 
activities performed pursuant to contracts for services that are to be 
submitted by the Secretary of Defense, in 2010, 2011, and 2012, 
respectively.[Footnote 24] To satisfy the mandate for 2011, we 
assessed (1) the progress the Department of Defense (DOD) has made in 
addressing limitations in its approach when compiling the fiscal year 
2010 inventories on contracted services and in developing a strategy 
to obtain manpower data and (2) the extent to which the military 
departments addressed issues with contractors performing inherently 
governmental functions identified during reviews of their fiscal year 
2009 inventories. As the military departments accounted for 83 percent 
of the reported obligations on service contracts and 92 percent of the 
reported number of contractor full-time equivalents (FTE) in the 
fiscal year 2009 inventories, we focused our efforts on the Army, 
Navy, and Air Force. 

To assess the progress DOD has made in addressing limitations in its 
previous approach when compiling the service contract inventories, we 
reviewed relevant guidance related to the inventory compilation 
processes and interviewed cognizant officials from the Office of the 
Under Secretary of Defense for Acquisition, Technology, and Logistics 
(AT&L), Office of Defense Procurement and Acquisition Policy; the 
Office of the Under Secretary of Defense for Personnel and Readiness; 
and the departments of the Army, Navy, and Air Force. We assessed 
changes made at the department level between the approaches for fiscal 
year 2009 and fiscal year 2010, but we did not assess the extent to 
which the change in approach affected the estimated number of 
contractor FTEs reported in the inventories. For the fiscal year 2010 
inventory, AT&L continued to rely on data from the Federal Procurement 
Data System-Next Generation (FPDS-NG) for most defense components 
other than the Army and the TRICARE Management Activity. As with the 
fiscal year 2009 inventory, the Army continued to use its Contractor 
Manpower Reporting Application (CMRA) that reports manpower data 
collected directly from its contractors. We reviewed Army guidance, 
interviewed officials responsible for the inventory compilation, and 
reviewed our prior work to describe the Army's inventory compilation 
process. We did not independently assess the accuracy or reliability 
of the underlying data supporting the Army's, Navy's, or Air Force's 
fiscal year 2010 inventory. Our January 2011 report, however, 
identified limitations associated with using FPDS-NG data as the basis 
for the inventory.[Footnote 25] As such, we reviewed our prior work to 
identify these limitations and discussed with AT&L officials what 
steps, if any, they had taken to address these limitations. 

To assess DOD's progress in developing a strategy to obtain manpower 
data, we reviewed DOD's efforts to respond to congressional direction 
reflected in section 8108 of the 2011 Defense Appropriations Act, 
which required the Navy and the Air Force to submit plans to leverage 
the Army's CMRA system and the military departments and components to 
submit plans to Congress for reporting contractor FTEs no later than 
June 15, 2011. We reviewed and assessed the 43 plans submitted by the 
military departments and defense components as of February 2012 as 
well as DOD's November 2011 plan, which included instructions to the 
military departments and DOD components to document contractor FTEs 
and begin the collection of manpower data. We interviewed officials 
from AT&L's Office of Defense Procurement and Acquisition Policy, and 
the Office of the Under Secretary of Defense for Personnel and 
Readiness to obtain their views on the department's plans to collect 
contractor manpower data. 

To assess the extent to which the military departments addressed 
instances in which contractors were performing inherently governmental 
functions, we used data from the fiscal year 2009 inventory reviews, 
which was the most current review available at the time we began our 
work. To do so, we reviewed a total of 12 instances in which 
contractors were identified as performing inherently governmental 
functions. We selected two Army commands and one Air Force component 
based in part on the number of such instances they had identified. For 
the Army, we randomly selected 3 instances from the Army's inventory 
review data at the Training and Doctrine Command and 3 instances at 
the Acquisition Support Center. These data included determinations 
made by the Army's Panel for the Documentation of Contractors, which 
identified the functions as being inherently governmental, closely 
associated with inherently governmental, or unauthorized personal 
services, as well as the commands' determination of how each function 
was resolved. For the 6 Army cases we randomly selected, we reviewed 
the inventory review data and interviewed officials responsible for 
the fiscal year 2009 inventory review process. We subsequently 
eliminated 3 of the instances we randomly selected because they were 
identified as closely associated with inherently governmental 
functions or unauthorized personal services. In addition, we reviewed 
6 instances where contractors were performing the duties of Department 
of the Army systems coordinators. Army's 2010 acquisition review 
chartered by the Secretary of the Army determined that these positions 
were inherently governmental.[Footnote 26] For each of these cases, we 
reviewed the contract files and interviewed program and contracting 
officials responsible for these contracts to determine the extent to 
which DOD took action to resolve instances of contractors performing 
inherently governmental functions. 

The Air Force provided data to us in September 2011 that summarized 
the results of its fiscal year 2009 inventory review process, 
including functions being performed by contractors that it identified 
as inherently governmental. Pursuant to the Secretary of the Air 
Force's October 2010 guidance, the inventory review was to include all 
contracts from the beginning of fiscal year 2009 through August 2010. 
From these data, we determined that the Air National Guard had the 
largest number of instances in which the review process identified 
contractors as performing inherently governmental functions, and 
randomly selected 3 instances the Air Force had identified as 
including inherently governmental functions at the Air National Guard. 
We also interviewed officials from the Air National Guard and the Air 
Force Space Command about their inventory review process. In November 
2011, Air Force officials provided us a revised data set that excluded 
contracts awarded from October 2009 through August 2010, including the 
contracts at the Air National Guard. Since these contracts were 
reviewed as part of the Air Force's fiscal year 2009 inventory review 
process as directed by the Secretary of the Air Force and included 
functions identified as inherently governmental, we included them in 
our review. 

At the time we initiated our work, Navy headquarters officials did not 
have the results of their fiscal year 2009 inventory review process 
available and subsequently acknowledged that they were uncertain 
whether their commands conducted the required reviews. Consequently, 
we considered DOD's fiscal year 2010 in-sourcing data that were 
reported to Congress in September 2011. From the Navy's in-sourcing 
data, we selected Fleet Forces Command and Space and Naval Warfare 
Systems Command for further review based on the number of positions 
they reported as in-sourced based on contractor performance of an 
inherently governmental function. We also contacted Naval Sea Systems 
Command, the largest of five Navy systems commands, to discuss whether 
the command had conducted an inventory review but were informed that 
the command had not done so. We did not review individual Navy 
contracts because Space and Naval Warfare Systems command officials 
stated that it was not possible to track the positions to specific 
contracts. Also, we found that the commands subsequently reported that 
the functions were not inherently governmental and were in-sourced for 
other reasons, such as to provide Navy personnel career progression 
opportunities. 

For the 12 cases we included in our review, we compared the 
information that the Army and Air Force provided regarding the 
contracts they reviewed with information in the contract files and 
found the data sufficiently reliable for the purposes of our work. We 
did not, however, independently assess whether the functions the 
military departments identified were in fact inherently governmental. 
Further, the results of our analysis are not generalizable to all 
instances where contractors were performing inherently governmental 
functions identified by the military departments. 

We conducted this performance audit between July 2011 and April 2012 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Comments from the Department of Defense: 

Office of The Under Secretary Of Defense: 
Personnel and Readiness: 
4000 Defense Pentagon: 
Washington, DC 20301-4000: 

Mr. John Hutton: 
Director, Acquisition and Sourcing Management: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548: 

Dear Mr. Hutton: 

This is the Department of Defense (DoD) response to the GAO draft 
report 12-357, "Defense Acquisitions: Further Actions Needed to 
Improve Accountability for DoD's Inventory of Contracted Services, 
February 23, 2012 (GAO Code 121008". 

The Department appreciates the opportunity to review and comment on 
this draft report. The Department largely agrees with the GAO 
recommendations, and is committed, from the highest levels of 
leadership and throughout the entire enterprise, to continue to 
improve its accounting for contracts for services. The Department has 
also received acknowledgment from the Departments of the Air Force, 
Army and Navy that they will take GAO's recommended steps to improve 
their inventories. 

As noted in the report, the Department issued a plan in November 2011 
to improve its inventory processes and meet the revised legislative 
requirements of sections 235 and 2330a of title 10, added by the 
fiscal year 2011 National Defense Authorization Act — including the 
requirement for the collection of "direct labor hours and associated 
cost data collected from contractors..." This plan included short- and 
long-term actions necessary to meet this requirement, including 
adopting Army best practices and modifying databases used to identify 
the requiring activity, functions and missions performed by the 
contractor, but was contingent on approval of an emergency waiver to 
the Paperwork Reduction Act (PRA). The Department is unable to 
establish additional milestones or further specify how it will improve 
its inventory processes until this waiver is granted. 

In early December, the Department submitted a request for an emergency 
waiver to the Office of Management and Budget (OMB). In mid-December, 
OMB granted the Army's request to renew its PRA waiver, based on the 
use of the Contractor Manpower Reporting Application and associated 
processes. In late December, OMB forwarded concerns raised by the 
Professional Services Council with the Department's planned collection 
methodologies and estimation of public burden (which were based on the 
Army's processes and experience for the past five years). OMB 
indicated via email that the Department's request would be disapproved 
in late January, so in early February, the Department posted a second 
Federal Register notice, to begin the standard 60 day PRA comment 
period. That comment period ends March 23. Before additional 
milestones can be estimated, the Department will adjudicate any 
comments received from this comment period, post responses for another 
30 day Federal Register notice period, and await OMB findings of these 
actions. 

Recommendation 1: The GAO recommends, to improve the execution and 
utility of the inventory review process, that the Secretary of Defense 
ensure that the military departments and defense components issue 
guidance to their commands that provides clear lines of authority, 
responsibility, and accountability for conducting an inventory review 
and resolving instances where functions being performed by contractors 
are identified as inherently governmental functions. 

DoD Response: The Department partially concurs with this 
recommendation. In December 2011, the Department issued "Guidance for 
Submission and Review of the FY2011 Inventory of Contracts for 
Services," including specific steps for each Component to complete a 
review of their respective inventories. The Department agrees that it 
is imperative that each organization provide clear lines of authority, 
responsibility, and accountability for conducting an inventory review, 
and for resolving instances where functions being performed by 
contractors are identified as inherently governmental functions. 
However, because the 44 individual Components that this guidance 
applies to vary in size and mission, the need for individual 
Components to have organization specific-guidance should not be 
mandated but rather determined by each Component head. The guidance 
issued by the Department, while not prescribing individual
Component management practices, requires Component heads to certify, 
in writing, completion of the review and delineate the results in 
accordance with all applicable title 10 provisions. 

Recommendation 2: The GAO recommends to ensure that the six instances 
we reviewed in which the Army identified that contractors were still 
performing functions it deemed inherently governmental, as well as 
those at Kwajalein Atoll, have been properly resolved, we recommend 
that the Secretary of the Army review these functions, determine the 
status of actions to resolve the issues, and, as appropriate, take 
necessary corrective actions. 

DoD Response: The Department concurs with this recommendation and will 
work with the Army to ensure corrective actions, as appropriate and 
necessary, are taken. 

Recommendation 3: To ensure that the two instances we reviewed where 
contractors were still performing functions the Air Force had 
previously identified as inherently governmental are properly 
resolved, we recommend that the Secretary of the Air Force review 
these functions, determine the status of actions to resolve the 
issues, and, as appropriate, take necessary corrective actions. 

DoD Response: The Department concurs with this recommendation and will 
work with the Air Force to ensure corrective actions, as appropriate 
and necessary, are taken. 

Should you have any questions, please contact my primary action 
officer, Ms. Amy Parker, Associate Director of Total Force Programming 
and Execution, at 703-697-1735, or at amy.parker@osd.mil. 

Sincer1ely, 

Signed by: 

Paige Hinkle-Bowles: 
Deputy Assistant Secretary: 
Civilian Personnel Policy: 

[End of section] 

Appendix III: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

John P. Hutton, (202) 512-4841 or huttonj@gao.gov: 

Cary B. Russell, (404) 679-1808 or russellc@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Timothy DiNapoli, Acting 
Director; MacKenzie Cooper; Julia Kennon; John Krump; Angie Nichols-
Friedman; and Guisseli Reyes-Turnell made key contributions to this 
report. 

[End of section] 

Footnotes: 

[1] Inherently governmental functions, as a matter of policy, are so 
intimately related to the public interest as to require performance by 
government employees and include functions that require discretion in 
applying government authority or value judgments in making decisions 
for the government. Federal Acquisition Regulation § 7.503(c) provides 
examples of such functions. In addition, closely associated with 
inherently governmental functions are those that while not inherently 
governmental, may approach the category because of the nature of the 
function, the manner in which the contractor performs the contract, or 
the manner in which the government administers performance under a 
contract. Federal Acquisition Regulation § 7.503(d) provides examples 
of such functions. 

[2] See, for example, GAO, Defense Management: DOD Needs to Reexamine 
Its Extensive Reliance on Contractors and Continue to Improve 
Management and Oversight, [hyperlink, 
http://www.gao.gov/products/GAO-08-572T] (Washington, D.C.: Mar. 11, 
2008), and Defense Acquisitions: Tailored Approach Needed to Improve 
Service Acquisition Outcomes, [hyperlink, 
http://www.gao.gov/products/GAO-07-20] (Washington, D.C.: Nov. 9, 
2006). 

[3] Pub. L. No. 111-84 (2009). 

[4] GAO, Defense Acquisitions: Further Action Needed to Better 
Implement Requirements for Conducting Inventory of Service Contract 
Activities, [hyperlink, http://www.gao.gov/products/GAO-11-192] 
(Washington, D.C.: Jan. 14, 2011). 

[5] Army Strong: Equipped, Trained and Ready: Final Report of the 2010 
Army Acquisition Review, John M. McHugh, Secretary of the Army 
(January 2011). 

[6] The National Defense Authorization Act for Fiscal Year 2002, Pub. 
L. No. 107-107, § 801(c) (2001). 

[7] The National Defense Authorization Act for Fiscal Year 2008, Pub. 
L. No. 110-81, § 807. 

[8] 10 U.S.C. § 2330a(e). 

[9] The Ike Skelton National Defense Authorization Act for Fiscal Year 
2011, Pub. L. No. 111-383, § 321. 

[10] Pub. L. No. 112-81 (2011). 

[11] The National Defense Authorization Act for Fiscal Year 2008, Pub. 
L. No. 110-181 § 324. We recently reported on DOD's fiscal year 2010 
in-sourcing efforts. See GAO, Defense Workforce: DOD Needs to Better 
Oversee In-sourcing Data and Align In-sourcing Efforts with Strategic 
Workforce Plans, [hyperlink, http://www.gao.gov/products/GAO-12-319] 
(Washington, D.C.: Feb. 9, 2012). 

[12] The National Defense Authorization Act for Fiscal Year 2010, Pub. 
L. No. 111-84 § 1108(a)(1) and 803 (a) (2009). We did not assess DOD's 
implementation of this requirement as part of this review. 

[13] All categories of services identified in FPDS-NG were included in 
the inventory, except services related to research and development 
(except program management), lease of facilities and equipment, and 
construction. 

[14] Product and service codes describe the products, services, and 
research and development purchased by the federal government. The 
codes indicate what was bought for each contract action in FPDS-NG. 
However, users of FPDS-NG are directed to enter only one product and 
service code for each contract action--for example, task order--into 
FPDS-NG and, for those instances where more than one service was 
provided, they are to enter the product and service codes that 
represent most of the value of the contract action. 

[15] A contractor FTE is defined as a standard measure of labor that 
equates to 1 year of full-time work (labor hours as defined by the 
Office of Management and Budget Circular A-11 each year) to support a 
mission requirement. 

[16] The requiring activity is the organization charged with 
fulfilling a mission for or on behalf of DOD, and is responsible for 
delivering the service to satisfy the mission, even if the effort is 
contracted to the private sector. 

[17] For example, in January 2011, we reported that AT&L's guidance 
instructed DOD components to record in the inventory the category of 
service with the predominant amount of dollars, although more than one 
category of service may be purchased under a contract action. Further, 
we reported that DOD and military department officials expressed 
concerns that the average direct labor rates and average ratios in 
AT&L's approach to estimate contractor FTEs did not reflect the 
services for which they contract, which may cause significant 
variations, either over-or under-reporting, for specific categories of 
services and particular contracts. See [hyperlink, 
http://www.gao.gov/products/GAO-11-192]. 

[18] The TRICARE Management Activity also used an alternate approach, 
which collected manpower data directly from contractors, though its 
calculation of contractor FTEs was estimated using a census. TRICARE 
Management Activity officials directed each contractor associated with 
the fiscal year 2010 inventories to formulate a total number of direct 
labor FTEs, both salaried and hourly. The TRICARE Management 
Activity's count reflects direct labor for the prime contract, 
excluding subcontract labor and clinical support agreement employees. 

[19] Department of Defense and Full-Year Continuing Appropriations 
Act, 2011, Pub. L. No. 112-10, § 8108. 

[20] 44 U.S.C. §§ 3501-3521. The Paperwork Reduction Act requires that 
agencies obtain Office of Management and Budget approval before 
requesting most types of information from the public. 

[21] [hyperlink, http://www.gao.gov/products/GAO-11-192]. 

[22] DOD's September 2011 in-sourcing report to Congress noted that 
the two Navy commands in our review had in-sourced almost 500 
positions to address concerns that contractors were performing 
inherently governmental functions. In February 2012, we reported that 
some of the commands, including those we reviewed, made errors in 
reporting in-sourcing data. For example, 348 of 354 new in-sourcing 
authorizations by the Navy's Fleet Forces Command were categorized as 
inherently governmental when they should have been categorized as 
exempt from private sector performance for continuity of 
infrastructure operations. See [hyperlink, 
http://www.gao.gov/products/GAO-12-319]. Command officials told us 
that regardless of the appropriate categorization of the in-sourcing 
decisions, they did not use the inventories to inform their decisions. 

[23] Army Strong: Equipped, Trained, and Ready. 

[24] Pub. L. No. 111-84, § 803 (c) (2009). 

[25] GAO, Defense Acquisitions: Further Action Needed to Better 
Implement Requirements for Conducting Inventory of Service Contract 
Activities, [hyperlink, http://www.gao.gov/products/GAO-11-192] 
(Washington, D.C.: Jan. 14, 2011). 

[26] Army Strong: Equipped, Trained and Ready: Final Report of the 
2010 Army Acquisition Review, John M. McHugh, Secretary of the Army 
(January 2011). 

[End of section] 

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