Pension Benefit Guaranty Corporation:

More Strategic Approach to Contracting Still Needed

GAO-11-588: Published: Jun 29, 2011. Publicly Released: Jun 29, 2011.

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The Pension Benefit Guaranty Corporation (PBGC) insures the pension benefits of more than 44 million U.S. workers and retirees in more than 27,500 private defined benefit plans. In response to growing workloads over the last 20 years, PBGC has come to rely heavily on contractors to perform its work. With the influx of plan terminations during the recent economic downturn, GAO was asked to examine: (1) how PBGC decides between contracting for services and performing services in house; (2) the steps PBGC has taken to strengthen its internal controls over the contracting process; and (3) PBGC's implementation of a performance-based approach in its recent contracts. To conduct this study, GAO reviewed federal and PBGC contracting policies; interviewed PBGC officials and selected contractors; examined a small judgmental sample of eight recent contracts selected based on type, amount, and location; and assessed PBGC's actions in response to past GAO and PBGC Inspector General (IG) recommendations.

PBGC's contracting decisions are based primarily on historical practice within each of its departments rather than strategic assessment. Nearly three-fourths of PBGC's budget is allocated to contractors, yet PBGC does not have a strategic agency-level plan for contracting. PBGC often justifies extensive use of contractors based on the need to manage fluctuating workloads; however, historical data appear to indicate that PBGC has more contractor workers than needed to respond to workload fluctuations. Some of its contractor use is justified based on needed expertise or lower cost. However, because PBGC does not routinely conduct cost-benefit or risk analyses as part of its contract decision-making process, the efficiency and effectiveness of its contracting is unknown, and PBGC's long-term extensive reliance on contractors may be placing the agency at risk of eroding management control in core functions. At the same time, PBGC has adopted new policies and procedures to improve contractor oversight and ensure that federal contracting requirements are met, addressing past GAO and PBGC IG recommendations in this area. For example, PBGC has issued new standard operating procedures and is conducting training for staff involved in the agency's contracting activities. In addition, PBGC has increased the use of competitive and fixed price contracts, which provide more integrity to the contracting process by limiting government cost and performance risk. In addition, PBGC has implemented new guidance and training to improve staff knowledge and understanding of performance-based contracting and has expanded its use. Between fiscal years 2008 and 2010, PBGC increased the use of performance-based contracts from 2 to 12 percent. PBGC also increased its incorporation of performance metrics across various types of contracts to ensure performance is measured in terms of outcomes. Thus, past GAO and IG recommendations in this area have been partially addressed. However, unlike work performed in house, PBGC does not require performance metrics for its contract work to be linked to agency mission and goals, which is important to ensuring such work is well integrated into its strategic plan. GAO recommends that PBGC improve its strategic approach to contracting by developing an inventory of contract resources, assessing risk in areas heavily reliant on contractors, documenting its consideration of performance-based contracting, and linking contractor performance to agency goals. PBGC agrees with our recommendations.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In May 2012, PBGC reported that its Procurement Department had prepared a FY 2011 service contract inventory and service contract inventory summary, and had submitted these documents to OMB. Consistent with the OMB guidance, the summary categorized PBGC's service contracts by function to identify areas of heavy reliance on contractors. Officials noted that this inventory is a primary tool being utilized in a comprehensive review of all PBGC contracts and contractors, and that development of the inventory is helping its Procurement Department and its Budget & Organizational Department gain a greater understanding of the nature and types of contracting being performed at PBGC.

    Recommendation: To improve PBGC's performance in an environment of heavy contractor use, further efforts are needed to better integrate contract decision making and contract management into PBGC's agency-level strategic planning process. While recognizing that Office of Management and Budget (OMB) guidance is not binding for PBGC, to assist PBGC in reassessing its extensive reliance on contracting, the Director of PBGC should implement OMB guidance that calls on agencies to develop a service contract inventory, by function and location across the agency and within its departments, to identify the extent of its current reliance on contractors and enable a balanced workforce analysis. At a minimum, such reviews should capture the total dollar amount of service contract spending by function and the role services play in achieving agency objectives. Consistent with OMB guidance, PBGC should give priority consideration to functions that require increased management attention due to heightened risk of workforce imbalance.

    Agency Affected: Pension Benefit Guaranty Corporation

  2. Status: Open

    Comments: PBGC has maintained that the agency already considers the risks and costs associated with the strategic decision to use contractors as a means to respond to workload fluctuations and to obtain support services. For example, agency officials told us that in June 2011, PBGC initiated a review of its benefits administration and payments process that included an organizational assessment, workforce analysis, and business process evaluation. According to PBGC officials, this assessment represents a top-to-bottom review of its largest functional area that will inform the agency about contractor use across all departments. While GAO supports the value of conducting such an assessment, GAO does not agree that this initiative is sufficient to satisfy the goals of the risk analysis outlined in OMB's guidance. Specifically, OMB's guidance calls for agencies to undertake a risk analysis in areas identified in their service contract inventories as heavily reliant on contractors, including an evaluation of the cost effectiveness of decisions to award work to contractors in such areas, and to identify additional critical contracted functions where the agency may be at risk based on factors such as inadequate contract management support, historical performance challenges associated with contracting, or the level of risk associated with contract performance. OMB's guidance further requires agencies to use data from their service contract inventory to report on the role contracted services play in achieving agency objectives. In July 2013, PBGC told GAO that the Director was briefed about options to change PBGC?s Benefit Administration and Payment Department?s (BAPD?s) business processes in a report entitled ?Strategic Review ? Future State Options.? PBGC also indicated that it is involved in certain pilots to assess the appropriate options given management?s long-term intent to restructure BAPD. PBGC also stated that it had established a working group (?Inherently Governmental Working Group? or ?Group?) that meets weekly to discuss appropriate roles of federal employees and contractors given existing and new regulations promulgated by OMB. Based on the ongoing analysis of this Group, PBGC has delivered training to Procurement staff throughout the agency and in some cases contractor activity has been more explicitly defined. Members of the Group presented various internal training sessions in April 2012, with refresher briefings in April 2013. While GAO supports the agency's efforts to improve BAPD processes and maintain a contracting working group, GAO continues to believe that PBGC should conduct a risk analysis by reviewing data provided through its service contract inventory to help the agency to better integrate contract decision making and contract management into agency-level strategic planning process. GAO further believes that PBGC should analyze data from its service contract inventory for all of its departments-in addition to BAPD-to determine the role contracted services play in achieving agency objectives, with priority consideration given to functions that require increased management attention due to heightened risk of workforce imbalance.

    Recommendation: To improve PBGC's performance in an environment of heavy contractor use, further efforts are needed to better integrate contract decision making and contract management into PBGC's agency-level strategic planning process. While recognizing that Office of Management and Budget (OMB) guidance is not binding for PBGC, to assist PBGC in reassessing its extensive reliance on contracting, the Director of PBGC should implement OMB guidance that calls on agencies to undertake a risk analysis in areas identified as heavily reliant on contractors, including an evaluation of the costs and benefits of decisions to award work to contractors in such areas.

    Agency Affected: Pension Benefit Guaranty Corporation

  3. Status: Closed - Implemented

    Comments: PBGC established a new requirement for documenting the basis for not using a performance-based service acquisition approach on its standard Advanced Procurement Plan (APP) form. Following increased efforts to ensure compliance, in February 2014, PBGC provided examples of two different contracts not using a performance-based service acquisition approach with the rationales documented on the APP forms as required.

    Recommendation: To encourage expanded use of performance-based contracting with performance metrics linked to the agency's mission and goals, the Director of PBGC should ensure that the rationale for not using a performance-based service acquisition approach is documented, consistent with the Federal Acquisition Regulation (FAR).

    Agency Affected: Pension Benefit Guaranty Corporation

  4. Status: Closed - Implemented

    Comments: Although PBGC stated that it already ties performance metrics of major service contracts to its strategic goals through use of performance work statements and quality assurance surveillance plans, the agency revised its standard Advanced Procurement Plan (APP) form to further document this linkage. Examples of completed forms were provided showing that this is now being done.

    Recommendation: To encourage expanded use of performance-based contracting with performance metrics linked to the agency's mission and goals, the Director of PBGC should ensure that the performance metrics for major service contracts are linked to specific corporate strategic goals to the maximum extent practicable.

    Agency Affected: Pension Benefit Guaranty Corporation

 

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