This is the accessible text file for GAO report number GAO-11-923R 
entitled 'DOD Met Statutory Reporting Requirements on Public-Private 
Competitions' which was released on September 26, 2011. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as 
part of a longer term project to improve GAO products' accessibility. 
Every attempt has been made to maintain the structural and data 
integrity of the original printed product. Accessibility features, 
such as text descriptions of tables, consecutively numbered footnotes 
placed at the end of the file, and the text of agency comment letters, 
are provided but may not exactly duplicate the presentation or format 
of the printed version. The portable document format (PDF) file is an 
exact electronic replica of the printed version. We welcome your 
feedback. Please E-mail your comments regarding the contents or 
accessibility features of this document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

GAO-11-923R: 

United States Government Accountability Office: 
Washington, DC 20548: 

September 26, 2011: 

Congressional Committees: 

Subject: DOD Met Statutory Reporting Requirements on Public-Private 
Competitions: 

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.[Footnote 
1] 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.[Footnote 2] 

Congress required that we assess the DOD review and report on any use 
of the authority to extend the 24-month time limit.[Footnote 3] To 
meet these requirements, we (1) identified the methodology and data 
sources DOD used to review its public-private competition policies, 
(2) assessed the extent to which DOD's report addressed statutory 
requirements and considered public-private competition issues we and 
others previously have identified, and (3) determined the extent to 
which DOD used its authority to extend the completion dates of any 
public-private competitions. To conduct this review, we met with the 
DOD officials responsible for the department's report and others 
within the department, reviewed the documents DOD used in conducting 
its review, and analyzed various statutes, regulations and guidance. 
We did not independently verify any of the data DOD used in conducting 
its review. We also reviewed our prior work in this area. Further 
detail on our approach is in the Scope and Methodology section on page 
12. 

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

Results in Brief: 

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: 

* compliance with a new requirement expanding competition requirements 
to activities with fewer than 10 federal employees; 

* actions taken in response to issues raised by the DOD Inspector 
General (IG) in a 2008 report; 

* the ability of existing systems to provide comprehensive and 
reliable data on the cost and quality of functions subject to public-
private competition; 

* the appropriateness of certain cost differentials and factors, such 
as the overhead rate, used in public-private competitions; and: 

* 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. 

Background: 

Since the mid-1950s, the executive branch has encouraged federal 
agencies to obtain commercially available services from the private 
sector when doing so is cost effective. The policy has recognized, 
however, that circumstances may exist when these services should be 
performed by government employees. This policy was formally instituted 
in 1966 with the issuance of Circular A-76, which governs the conduct 
of public-private competitions and related processes for determining 
whether a commercial activity should be performed by federal employees 
or under a private sector contract.[Footnote 4] 

In 2003, the Office of Management and Budget (OMB) issued its most 
recent revision to Circular A-76. This revision was intended to 
provide an improved foundation for public-private competition 
decisions. In its current form, the guidance provides agency 
management with a structured process for comparing the public and 
private sector approaches and costs of performing commercial 
activities with the stated goal of obtaining maximum value for 
taxpayers' dollars by taking advantage of competitive forces. It 
includes four key public-private competition phases, each of which 
involves a number of tasks (see figure 1). 

Figure 1: Major Competitive Sourcing Phases and Related Tasks: 

[Refer to PDF for image: illustration] 

Inventory agency activities: 
Prepare inventory,[A] categorizing all activities performed as 
commercial or inherently governmental. 

Conduct preliminary planning: 
Identify commercial activities and full-time equivalent positions to 
compete; 
Conduct research to determine appropriate groupings of activities as 
business units; 
Assess availability of workload data and establish data collection 
systems as necessary: 
* Quantify outputs of activities and processes; 
* Evaluate agency or industry performance standards; 
* Establish data collection systems; 
Determine baseline costs for incumbent service provider provider; 
Determine competition type (streamlined or standard) and schedule; 
Set participant roles and responsibilities[B].   

Announce and conduct competition: 
Publicly announce competition, which is competition start date; 
For streamlined competitions, calculate costs of agency and private 
sector performance; 
For standard competitions: 
* Agency team prepares performance work statement; 
* Agency team develops most efficient organization; 
* Agency issues solicitation; 
Make performance decision; 
Publicly announce decision, which is the competition's end date; 
Agency implements performance decision with either the private sector, 
public reimbursable sector, or agency sector provider  

Implementation and postcompetition: 
Monitor performance: 
* Implement quality assurance surveillance plan; 
* Monitor, collect, and report performance costs and information; 
* Manage contract file; 
Maintain database to track each competition; 
Submit competitive sourcing quarterly report to OMB. 

Source: GAO analysis of OMB Circular A-76. 

[A] An inventory is not done for each specific competition, but is 
required for the entire agency under the Federal Activities Inventory 
Reform Act. 

[B] Competitive Sourcing Officials appoint competition officials for 
each standard competition, and, as appropriate, may appoint 
competition officials for streamlined competitions. These include: 
Agency Tender Official, Contracting Officer, Performance Work 
Statement Team Leader, Human Resource Advisor, and Source Selection 
Authority. 

[End of figure] 

After DOD announces a public-private competition, it may receive bids 
from both the public and private sectors, which are the basis for a 
cost comparison and performance decision. Private sector firms may 
submit bids, much as in any federal procurement, while government 
agencies also develop in-house bids, or "tenders," under which agency 
employees will perform the work if they win the competition. The 
staffing plan identified in the in-house agency bid is referred to as 
a "most efficient organization" (MEO). The MEO is not usually a 
reflection of the existing organizational structure, but more commonly 
it reflects a smaller, restructured version of the incumbent 
government organization doing the work. After comparing the private 
sector and in-house agency bids, the agency selects the winning bid 
and announces a performance decision, which results in a contract or 
agreement transferring performance of the activities to the winning 
entity. 

DOD Collected and Analyzed Policies and Lessons Learned to Address the 
Review Requirements: 

The department began its review of the public-private competition 
program in December 2009 with a kickoff meeting and the subsequent 
collection of relevant policy documentation and lessons learned from 
the military services and several DOD components with the largest 
public-private competition programs in terms of number of competitions 
conducted and positions competed under the revised OMB Circular A-76. 
DOD also reviewed DOD-wide guidance. The majority of best practice and 
lesson learned information was from the Navy, which has had the 
largest A-76 program within DOD over many years. As a result, 
according to DOD officials, the Navy had the most extensive history of 
documented best practices and lessons learned from which to draw upon 
for this review. 

We conducted a limited analysis of the documentation collected by DOD 
officials and observed that the majority of the policy documentation 
had been updated within the past 5 years. All of the policies had been 
revised to reflect changes made during the last major revision of OMB 
Circular A-76 in 2003. 

The DOD review relied on the Defense Commercial Activities Management 
Information System (DCAMIS) for data on the performance decisions 
resulting from completed competitions and cost savings achieved by the 
department's public-private competition program. We and others have 
reported over the years on various shortcomings with DCAMIS. DOD 
officials acknowledged these past shortcomings, but they believe that 
DCAMIS has been improved and was the best source of data for purposes 
of the review. 

The DOD officials who led the review effort met with various DOD 
stakeholders and held subsequent discussions and information exchanges 
by telephone and e-mail as needed to clarify any of the information 
provided. Officials stated that they completed the collection and 
review of relevant documentation and other information during the 
summer of 2010 and coordinated the preliminary results of their review 
with stakeholders from September 2010 through March 2011. 

DOD Met Statutory Requirements for Its Review but Concerns Remain 
about Issues on Which We and Others Have Previously Reported: 

DOD complied with statutory requirements in conducting its review of 
public-private competitions and in submitting its June 2011 report to 
Congress. In its report, the department addressed the required topics, 
most of which relate to policy and process issues associated with 
public-private competitions. But concerns remain about some issues on 
which the DOD IG and we have previously reported. DOD's report 
discussed issues involving preliminary planning and service contract 
inventories and made a recommendation that the moratorium on DOD's use 
of public-private competitions be lifted. 

DOD's Report Addressed the Statutory Requirements: 

DOD's report addressed each of the five required elements in section 
325(b) of the NDAA 2010 and made recommendations to improve how DOD 
conducts public-private competitions. Table 1 summarizes how the DOD 
report addressed the five elements. Additional details on each element 
and the report's related response follow. 

Table 1: How DOD's Report Addressed the Five Required Elements: 

Required element: (1) Status of compliance with revisions to 10 U.S.C. 
2461(a) extending competition requirements to activities involving 
fewer than 10 full-time DOD civilian employees; 
DOD response: DOD reported that it complied with legislative changes 
regarding public-private competitions involving fewer than 10 
employees because it has not initiated any new competitions since the 
statutory moratorium; 
Met reporting requirement. 

Required element: (2) Actions taken by DOD to address specific 
concerns about the department's public-private competition program 
discussed in a DOD IG December 2008 report; 
DOD response: DOD reported on actions and best practices to be adopted 
by the military services and components to address the issues raised 
in the DOD IG report; 
Met reporting requirement. 

Required element: (3) Ability of systems in effect as of the date of 
enactment of the NDAA 2010 to provide comprehensive and reliable 
information on public-private competitions, which for DOD was DCAMIS; 
DOD response: DOD reported its belief that DCAMIS is a comprehensive 
and reliable system for tracking information on public-private 
competitions given acceptable error tolerances for the types of data 
it contains; 
Met reporting requirement. 

Required element: (4) Appropriateness of the cost differential and 
overhead rates used in public-private competitions in effect as of the 
date of enactment of the NDAA 2010; 
DOD response: DOD reported that it did not find a need for any changes 
to the cost differential at this time. The report also noted that 
updated guidance on the use of overhead rates emphasized the 
importance of segregating the categories of overhead costs to make 
sure all components consistently calculate overhead costs; 
Met reporting requirement. 

Required element: (5) Adequacy of policies to ensure compliance with 
the prohibition on requiring military services and other components to 
conduct a public-private competition at the end of a performance 
period for an activity that previously had been awarded to an agency 
organization; 
DOD response: DOD reported that it believes current policies are 
adequate to implement the statutory prohibition; 
Met reporting requirement. 

Source: GAO analysis of DOD's Report to the Congressional Defense 
Committees on the Department of Defense's Conduct of Public Private 
Competitions, June 23, 2011. 

[End of table] 

Activities with Fewer Than 10 Full-time Employees: 

As required, DOD reported on the status of compliance with legislative 
changes regarding public-private competitions involving fewer than 10 
DOD civilian employees. Previously, public-private competitions with 
fewer than 10 full-time DOD civilian employees were allowed to use a 
streamlined process that included a cost comparison between the costs 
of performance of the incumbent government activity and a contractor 
without creating an MEO. This process did not require a cost 
differential to be added to the contractor's cost proposal.[Footnote 
5] DOD is now required to conduct a public-private competition for any 
commercial activity currently performed by DOD civilian employees, 
regardless of the number of affected DOD civilian positions.[Footnote 
6] Should the current moratorium on competitions be lifted, DOD's 
report states that the department will not have any issues 
implementing and complying with the current requirement. 

Specific Findings Reported by the DOD Inspector General: 

The DOD report also addressed specific areas enumerated in a December 
2008 report by the DOD IG including how DOD had addressed the DOD IG 
recommendations. The IG identified eight general concerns about the 
public-private competitions.[Footnote 7] These concerns covered a 
range of issues mostly dealing with the integrity of the process. 
DOD's main response to the IG report included identifying best 
practices it intended to implement to improve how DOD conducts 
competitions. DOD's recommended best practices were also consistent 
with the Commercial Activities Panel report and our past work. 
[Footnote 8] The practices that could improve the conduct of public-
private competitions involve (1) building and maintaining an agency 
staff capable of managing competitions, building the in-house MEO, and 
overseeing the implementation of competition decisions; (2) 
centralizing responsibility for conducting public-private competitions 
to increase control and effectively use support contractors to manage 
competitions; (3) establishing a basic program infrastructure that 
would oversee the program and create policies and procedures to ensure 
that DOD competition policies and directives are carried out; and (4) 
avoiding conflicts of interest and protecting the integrity of the 
public-private competition decision-making process. 

Reliability of the DOD Information System: 

As required, the report discussed the reliability of the Defense 
Commercial Activities Management Information System (DCAMIS), which is 
the system DOD has used to track the results of public-private 
competitions since 2002.[Footnote 9] In May 2011, this system was 
taken off-line because of the legislative moratorium on conducting 
public-private competitions, and as a result, each military service 
and component is now responsible for maintaining its public-private 
competition information. DOD officials told us that before the system 
was taken off-line actions were taken to improve the reliability of 
the data in DCAMIS. For example, DOD officials said changes were made 
to the system user manual and automated checks were added to the 
system to improve the reliability of data entry. In addition, a review 
and validation process was established to make DOD components 
responsible for the accuracy of their respective public-private 
competition information. 

We have reported previously on various shortcomings in DCAMIS with 
respect to the accuracy and completeness of the data it contains. We 
recommended that DOD develop guidance and milestones for making needed 
improvements to the system, and DOD concurred.[Footnote 10] DOD 
officials told us that the improvements made to DCAMIS have enhanced 
the system's reliability, but no additional reviews of the system have 
been completed since the improvements were implemented. However, 
officials noted that the Deputy Under Secretary of Defense 
(Installations and Environment) commissioned the Center for Naval 
Analysis to complete a study that would have addressed the reliability 
of the DCAMIS data, but the study was stopped after the system was 
taken off-line in early 2011. 

Appropriateness of the Cost Differential and Overhead Rates Used in 
Cost Comparisons: 

DOD's report discussed the appropriateness of two separate and 
distinct cost elements--the cost differential and overhead rates--that 
are part of developing and comparing the government cost estimate and 
private sector cost proposal. 

The cost differential, which is required by statute,[Footnote 11] is 
added to the cost of the non-incumbent private sector proposal before 
it is compared with the cost of the government estimate. The purpose 
of the cost differential is to ensure that no activity is converted to 
a private sector source unless the expected savings exceed this 
specific monetary target. The cost differential is calculated as the 
lesser of either $10 million or 10 percent of the government's direct 
personnel-related costs for the MEO created in response to the 
competition, which is then added to the private sector proposal. It is 
intended to preclude conversions based on marginal estimated savings 
and is designed to capture nonquantifiable costs related to a 
conversion, such as the costs of service disruption and decreased 
productivity. DOD's report states that the cost differential currently 
in effect is an appropriate methodology. The Commercial Activities 
Panel also viewed the differential as a reasonable way to take into 
account the costs of the disruption and risk of converting from the 
public to the private sector. 

In addition, competitions require the calculation of overhead costs 
for the government cost estimate that consist of two separate 
categories: (1) operations overhead, which is included in specifically 
identifiable agency costs, and (2) general and administrative 
overhead, which OMB Circular A-76 requires be calculated using a 
standard rate of 12 percent of labor costs. DOD's report states that 
the department has provided updated guidance on what is included in 
these types of overhead costs, emphasizing the importance of 
segregating the two categories to make sure all components 
consistently calculate overhead costs in public-private competitions. 
The Deputy Under Secretary of Defense (Installations and Environment) 
sent a letter to OMB in August 2010 stating that DOD believed the 
updated overhead definitions were consistent with OMB guidance on the 
conduct of public-private competitions and that the department 
intended to use these definitions in competitions once the legislative 
moratorium on competitions is lifted. 

In our past work, we reported that the standard 12 percent rate for 
general and administrative overhead was adopted by OMB for all 
competitions governmentwide, leaving some doubts as to how closely 
this rate matched actual overhead costs on a site-by-site, activity-by-
activity, or agency-by-agency basis.[Footnote 12] We noted in our 
report that OMB established this standard rate in response to private 
sector concerns that federal agencies were not properly recognizing 
overhead in their cost of performance and to reduce the administrative 
burden of estimating general and administrative overhead cost because 
of difficulties in obtaining accurate information on the full cost of 
government programs. Our past work acknowledged the difficulty of 
obtaining reliable cost data that could provide a sound basis for an 
overhead rate, but we concluded that until actual overhead costs are 
used to develop a more meaningful standard overhead rate, the 
magnitude of savings expected from public-private competitions will be 
imprecise and competition decisions could continue to be 
controversial. We recommended that OMB and DOD develop a methodology 
to determine appropriate overhead rates. The agencies did not agree 
with our recommendation. 

Similarly, the DOD IG reported in March 2003 that the standard 12 
percent rate was not a fair estimate for calculating general and 
administrative overhead costs. DOD officials we met with in August 
2011 stated that DOD is reviewing the procedures used to estimate and 
compare costs of different configurations of military and DOD civilian 
staffing with the cost of service contracts. The review is intended to 
help make DOD workforce mix decisions and could better inform DOD 
regarding the methodologies that might be used to compute more 
accurate overhead cost estimates in public-private competitions. 

Holding Follow-on Competitions at the End of a Performance Period: 

DOD's report stated that current DOD policies are adequate to 
implement a statutory provision prohibiting the military services and 
other DOD components from being required to conduct another public-
private competition at the end of a performance period for an activity 
that had previously been subject to a competition.[Footnote 13] DOD 
stated in its report that current DOD policies are adequate to 
implement this provision. More specifically, a March 2008 DOD policy 
memorandum outlines the limits of the provision. But the memorandum 
recognizes that the provision does not entirely prohibit the use of 
public-private recompetitions and states that the provision gives the 
military services and components the discretion to conduct them. The 
memorandum noted that the military services and DOD components can 
still independently determine the commercial activities that will be 
subject to a public-private competition during the normal program and 
budget review process. As a result, the memorandum notes that annual 
and out-year public-private competition plans can be developed by the 
military services and components and then implemented, provided they 
receive budget approval. DOD's report recommended that the department 
issue clarifying guidance regarding the statutory limitations on 
recompetitions and how to correctly apply them when reviewing work for 
inclusion in a public-private competition that may include an activity 
previously subject to a competition. 

Preliminary Planning and Service Contract Inventories Also Discussed 
in DOD's Report: 

In addition to the required elements discussed above, the DOD report 
addressed two other issues related to the conduct of public-private 
competitions--preliminary planning and the preparation of DOD service 
contracts inventories. Preliminary planning has generally occurred 
prior to the announcement of a public-private competition. In some 
cases, preliminary planning may determine that a public-private 
competition is not feasible or appropriate and rule out the need for 
holding a competition. The DOD report recommends that preliminary 
planning not be included in the formal competition period. We have 
reported that depending on the complexity of the competition, the 
competition periods (from public announcement to a performance 
decision) have taken on average about 20 to 22 months for single 
function studies and 31 to 35 months for multifunction studies. 
[Footnote 14] Because some requirements have changed since our work 
was completed, the extent to which these average timeframes take into 
consideration any of the time required for preliminary planning is 
unclear. 

As described in the DOD report, the department is taking steps to 
improve the accuracy of its inventories of contractor employees, which 
must be certified as complete as a condition of restarting its public- 
private competition program. But these steps have yet to be completed. 
In fiscal year 2009, DOD estimated that nearly 767,000 contractor 
employee full-time equivalents (FTE) were working under service 
contracts in support of DOD activities.[Footnote 15] We have reported 
on DOD's contractor inventories since December 2009. Most recently, in 
January 2011, we reported that DOD had implemented a more uniform 
approach for compiling its fiscal year 2009 inventories compared to 
its approach in the prior year and that these changes in the approach 
affected both the reported spending on service contracts and the 
reported number of contractor employee FTEs.[Footnote 16] DOD noted 
that the improved approach provided more consistency in certain areas 
but still reflected continued limitations with the inventory. In 
response to our report, DOD concurred with our recommendations calling 
for the department to develop a plan of action to better collect 
manpower data and address limitations in its approach to meeting 
inventory requirements and to assess ways to improve how the 
department estimates contractor employee FTEs until it is able to 
collect manpower data directly from contractors. In its report on 
public-private competition, DOD said the department is working to 
develop an action plan and guidance to improve the inventory process 
to make it a more valuable tool that improves DOD's services 
acquisition and total force management. In August 2011, DOD officials 
told us that the accuracy of the service contracts inventory is 
improving, but it is not ready to be certified. 

DOD Has Not Used Its Statutory Authority to Extend the Time Period for 
Completing Public-Private Competitions: 

Section 322 of the NDAA 2010 provided that the duration of any public- 
private competition initiated by DOD after October 28, 2009, may not 
exceed 24 months. Section 322 allows DOD to specify an alternative 
period not to exceed 33 months if it determines that the competition 
is of such complexity that it cannot be completed within 24 months. 
The department must provide a written notification to Congress to use 
the alternative time period and explain the basis for such an 
extension.[Footnote 17] A DOD official told us that the department has 
not prepared congressional notifications to use an alternative time 
period because no new competitions have begun since the moratorium on 
competitions began. Section 322 requires that we report again on DOD's 
use of the alternative time period no later than October 28, 2014. 

Concluding Observations: 

Efforts to use public-private competitions as a means to implement 
cost-effective solutions to carry out commercial activities in DOD 
have undergone much scrutiny over the last decade, culminating in the 
current moratorium on the competitions. As a step toward lifting the 
moratorium and to satisfy requirements in the NDAA 2010, DOD has 
reported to the congressional defense committees on its policies and 
processes governing the competition process. In large part, the report 
stated that DOD believes its revised policies and processes are 
sufficient to continue with its public-private competition program. 
Our review of the department's report found that the DOD report met 
the requirements contained in the NDAA 2010. The DOD report also 
provided recommendations to build on its updated policies and 
processes, which we believe could improve the program. DOD's 
recommendations call for revised overall guidance governing the use of 
public-private competitions within the military services and DOD 
components that would incorporate the various legislative, regulatory, 
and DOD policy changes as well as incorporate the best practices 
identified in DOD's report. The DOD report also recommended excluding 
preliminary planning from the statutory time limit allowed for public-
private competitions. Based on our prior work, we generally agree with 
the DOD recommendations and believe they would add uniformity and 
improvement across the military services and components in how DOD 
conducts public-private competitions should the legislative moratorium 
on these competitions be lifted. 

Scope and Methodology: 

To assess the methodology and data sources DOD used in conducting its 
required review, we obtained and reviewed the policies, best 
practices, and lessons learned that DOD officials collected from the 
military services and other DOD components regarding how DOD conducts 
public-private competitions. In addition, we interviewed officials 
from the Offices of the Under Secretary of Defense (Personnel and 
Readiness) and the Under Secretary of Defense (Acquisition, Technology 
and Logistics) to identify the data sources and methodologies DOD used 
to conduct the review. To determine whether the statutory requirements 
were met, we reviewed the statute and the report DOD prepared to meet 
the requirements. We also met with DOD IG Office officials to discuss 
their views on DOD's report. We conducted a limited analysis of the 
policy, best practice, and lessons learned documentation collected by 
DOD officials, and we did not independently verify any of the data 
included in DOD's report on the public-private competitions completed 
and cost savings achieved. 

To determine the extent to which DOD's report considered prior work 
completed by us and the DOD IG on how DOD conducts of public-private 
competitions, we reviewed our past work, analyzed past DOD IG reports 
concerning public-private competitions, and met with DOD IG Office 
officials to discuss their past work. We also reviewed relevant 
research conducted by the Congressional Research Service and 
Congressional Budget Office to inform our assessment of DOD's review. 
To assess DOD's use of the alternative time period for public-private 
competitions, we requested copies of the notifications that DOD is 
required to submit to Congress should the alternative time period be 
used and we reviewed information in DOD's report on the status of 
studies that were announced since the beginning of fiscal year 2009. 

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

Agency Comments and Our Evaluation: 

We provided a draft of this report to DOD for comment. DOD provided 
written comments, which are reprinted in enclosure I. The Director, 
Requirements and Program & Budget Coordination, in the Office of the 
Under Secretary of Defense (Personnel and Readiness) expressed concern 
with how we reported on the standard 12 percent rate used to calculate 
overhead costs in public-private competitions. Briefly stated, he said 
that the 12 percent rate may affect the precision, but not the 
fairness, of the results of a public-private competition. We did not 
intend to imply that a rate of 12 percent might not be appropriate in 
certain circumstances or is unfair. Depending on the activity that is 
being competed under the A-76 process, however, we believe specific 
rates based on empirical data might be higher or lower. To address 
DOD's concern, and consistent with our previous reporting on this 
issue, we revised the language of our report. 

We are sending a copy of this report to the Secretary of Defense. 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, please contact me at (202) 
512-4841 or woodsw@gao.gov. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. Key contributors to this report are listed in 
enclosure II. 

Signed by: 

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

Enclosures - 2: 

List of Committees: 

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

The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate: 

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

The Honorable C.W. "Bill" Young:
Chairman:
The Honorable Norman D. Dicks:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives: 

[End of section] 

Enclosure I: Comments from the Department of Defense: 

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

September 20, 2011: 

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

Dear Mr. Woods, 

This is the Department of Defense (DoD) response to the GAO draft 
report 11-923R. "DOD Met Statutory Reporting Requirements on Public-
Private Competitions". 

The Department appreciates the support of the recommendations made to 
Congress in June. 

We have one concern related to the following statement on page 2 
specific to the issue of uncertainty about the "fairness" of results: 

"Further, the report discussed the overhead rate used in the cost 
comparisons and called for no change, even though both the DOD 
Inspector General and we have reported that the standard rate of 12 
percent does not have a sound analytical basis, which leaves some 
uncertainty about the fairness of the results of public-private 
competitions." 

Page 9 of the report correctly states that the overhead amount 
actually affects the precision of the results of public-private 
competitions. not the fairness. The 12% overhead amount is not unfair:
rather omitting it would allow unfair manipulation. In fact, the 12% 
overhead amount is used specifically to address the fairness of the 
results. 

Should you have any questions, please contact my primary action 
officer Ms. Amy Parker at 703-697-1735, or at amy.parker@osd.mil. 

Sincerely, 

Signed by: 

Kevin Kelly
Director, Requirements and Program & Budget Coordination: 

[End of section] 

Enclosure II: 

GAO Contact and Staff Acknowledgments: 

GAO Contact: 

William T. Woods, (202) 512-4841 or woodsw@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Jim Fuquay, Assistant 
Director; Morgan Delaney Ramaker; Matt Drerup; Marie Ahearn; Kenneth 
Patton; and Roxanna Sun made key contributions to this report. 

[End of section] 

Footnotes: 

[1] Pub. L. No. 111-84 § 325 (2009). 

[2] Pub. L. No. 111-84 § 322(a) (2009). 

[3] Pub. L. No. 111-84 §§ 322(c) and 325(c) (2009). 

[4] OMB Circular A-76, Performance of Commercial Activities, 
establishes federal policy and procedures for determining whether 
commercial activities should be performed in-house, by another federal 
agency, or by the private sector. Circular A-76 contains procedures 
agencies must use in calculating and comparing the costs of 
performance by in-house, private, or public reimbursable sources. 

[5] The cost (or conversion) differential is equal to 10 percent of 
the government's personnel-related costs for the MEO created in 
response to the competition or $10 million, whichever is less. 

[6] While OMB Circular A-76 establishes federal policy for the conduct 
of public-private competitions of commercial activities, a number of 
additional requirements, reports, and certifications are necessary for 
competitions conducted by DOD, per section 2461 of title 10, U.S. 
Code. As a result, section 2461 limits certain flexibilities on DOD 
competitions that OMB Circular A-76 would otherwise provide. 

[7] DOD, Office of Inspector General, DOD Inspector General Report to 
Congress on Section 325 of the "National Defense Authorization Act for 
Fiscal Year 2008" (Arlington, Va.: Dec. 15, 2008). 

[8] Commercial Activities Panel, Improving the Sourcing Decisions of 
the Government (Washington, D.C.: Apr. 30, 2002). 

[9] DCAMIS uses more than 150 data elements to track public-private 
competitions from announcement of a competition through the selection 
of the service provider and the end of the last performance period 
used in the competition. These elements include information such as 
the status of a competition, the type of solicitation, the issue and 
close dates of the solicitation, the number of positions competed, the 
final decision, appeals and protests filed, and the cost comparison 
data for the proposals. 

[10] GAO, DOD Competitive Sourcing: Results of Recent Competitions, 
GAO/NSIAD-99-44 (Washington, D.C.: Feb. 23, 1999). 

[11] Section 2461(a)(1)(F) of title 10, U.S. Code. 

[12] GAO, Defense Outsourcing: Better Data Needed to Support Overhead 
Rates for A-76 Studies, GAO/NSIAD-98-62 (Washington, D.C.: Feb. 27, 
1998). 

[13] Section 2461(a)(4) of title 10 of the U.S. Code states that a 
military department or defense agency may not be required to undertake 
a public-private competition under OMB Circular No. A-76 at the end of 
the performance period specified in a letter of obligation or other 
agreement entered into with DOD civilian employees pursuant to a 
public-private competition for any function of the department 
performed by DOD civilian employees. 

[14] GAO, Defense Management: DOD Faces Challenges Implementing Its 
Core Competency Approach and A-76 Competitions, GAO-03-818 
(Washington, D.C.: July 15, 2003), and Competitive Sourcing: 
Challenges in Expanding A-76 Governmentwide, GAO-02-498T (Washington, 
D.C.: Mar. 6, 2002). 

[15] Contractor employee estimates are stated in terms of FTEs, a 
measure of employment that represents the number of full-time 
employees that could have been employed if the reported number of 
hours worked by part-time employees had been worked by full-time 
employees. Generally, one FTE is equal to one workyear of 
approximately 2,080 hours. 

[16] GAO, Defense Acquisitions: Further Action Needed to Better 
Implement Requirements for Conducting Inventory of Service Contract 
Activities, GAO-11-192 (Washington, D.C.: Jan. 14, 2011). 

[17] The formal congressional notification must address (1) any 
efforts to geographically or functionally break up the study included 
in the public-private competition, (2) justification for undertaking a 
public-private competition instead of using internal realignment 
alternatives, and (3) the cost savings that DOD expects to achieve as 
a result of the public-private competition. 

[End of section] 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each 
weekday, GAO posts newly released reports, testimony, and 
correspondence on its Web site. To have GAO e-mail you a list of newly 
posted products every afternoon, go to [hyperlink, http://www.gao.gov] 
and select "E-mail Updates." 

Order by Phone: 

The price of each GAO publication reflects GAO’s actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAO’s Web site, 
[hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional 
information. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]: 
E-mail: fraudnet@gao.gov: 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Ralph Dawn, Managing Director, dawnr@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, D.C. 20548: 

Public Affairs: 

Chuck Young, Managing Director, youngc1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, D.C. 20548: