National Defense:

DOD Met Statutory Reporting Requirements on Public-Private Competitions

GAO-11-923R: Published: Sep 26, 2011. Publicly Released: Sep 26, 2011.

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The Department of Defense (DOD) relies on a multisector workforce of military personnel, other federal employees, and private contractors to perform needed services. The contractor workforce is substantial: DOD is the federal government's largest purchaser of contractor-provided services, such as aircraft maintenance or base operating support. Determining whether to obtain services with in-house resources or through private sector contractors is an important economic and strategic decision essential to DOD's effective and efficient use of taxpayer dollars. Conducting competitions between public and private sources to identify the most cost-effective provider of services is one tool DOD can use to achieve such efficiencies. In the National Defense Authorization Act for Fiscal Year 2010 (NDAA 2010), Congress imposed a temporary moratorium on new competitions involving functions currently performed by DOD civilian employees until, among other things, DOD reviewed and reported to Congress on various aspects of its public-private competition policies. The department submitted a report to Congress on its review on June 28, 2011. Should the moratorium be lifted, Congress also limited the duration of any new competitions to 24 months, with a possible extension to 33 months if DOD notifies Congress of the need for an extension. Congress required that we assess the DOD review and report on any use of the authority to extend the 24-month time limit..

To conduct the required review, DOD collected relevant public-private competition guidance, lessons learned, and best practices from the military services and DOD components. The majority of information on best practices and lessons learned was from the Navy, which has had the largest public-private competition program for many years. DOD complied with the statutory requirements in conducting its review of public-private competitions and in submitting its June 2011 report to Congress. Specifically, the report addressed the five required topics: (1) compliance with a new requirement expanding competition requirements to activities with fewer than 10 federal employees; (2) actions taken in response to issues raised by the DOD Inspector General (IG) in a 2008 report; (3) the ability of existing systems to provide comprehensive and reliable data on the cost and quality of functions subject to public-private competition; (4) the appropriateness of certain cost differentials and factors, such as the overhead rate, used in public-private competitions; and (5) the adequacy of DOD policies regarding mandatory recompetitions of work previously awarded to employee groups. While DOD's report addressed the statutory requirements, concerns remain about some of the issues on which the DOD IG and we have previously reported. For example, DOD's report stated that upgrades to the current system used to track data on public-private competitions have been made, but because of the moratorium, DOD has not reviewed whether data reliability and accuracy actually has improved. Further, the report discussed the overhead rate used in the cost comparisons and called for no change, even though both the DOD IG and we have reported that the standard rate of 12 percent of labor costs does not have a sound analytical basis, which leaves some uncertainty about whether that rate may be understated or overstated for any given public-private competition. DOD's report recommended excluding preliminary planning from the competition time limits. The report also recommended that DOD issue revised comprehensive guidance that would incorporate various policy changes as well as best practices that could improve the competitions. The report also recommends that the moratorium on DOD's use of public-private competitions be lifted. Because of the moratorium, DOD has not initiated any new public-private competitions and therefore has not invoked its authority to extend the time limit on completing such competitions.

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