Service Contracts: Agencies Should Take Steps to More Effectively Use Independent Government Cost Estimates
Fast Facts
Independent government cost estimates help the government understand the potential cost of a contract. They're an important planning tool, especially for service contracts.
Some of the agencies that spend the most on service contracts may not be taking advantage of this tool: we found uneven guidance on when to use estimates.
We also found different levels of detail in the estimates themselves, which can affect how useful they are to contracting officers. The details help officers determine, for example, how reasonable a contractor's price is.
We made 5 recommendations to make better use of independent government cost estimates.
Well-Documented Independent Government Cost Estimates (IGCE), per GAO’s Cost Estimating Guide
Bar chart showing that comparatively few estimates in our review were considered well-documented.
Highlights
What GAO Found
Officials at the departments in GAO's review—Defense, Homeland Security, Health and Human Services, Education, Labor, and Housing and Urban Development—developed independent government cost estimates (IGCE) for 62 of the contracts GAO reviewed. All of the departments in GAO's review have some guidance on IGCEs available—ranging from regulation to handbooks to checklists—with different emphasis on whether an IGCE is required. GAO found some cases where guidance dictated that an IGCE should have been prepared, but was not. According to officials, one reason for not preparing an IGCE was that the procurement was a task order issued under an existing contract. Federal internal control standards state that agencies should communicate quality information to achieve their objectives, such as including clear guidance for acquisition planning.
In the 62 contracts GAO reviewed with IGCEs, the IGCEs' use in acquisition planning varied—from determining funding needs to determining price reasonableness. The usefulness of an IGCE to a contracting officer depends in part on its supporting documentation, but most IGCEs did not document data sources and methodologies used (see figure) .
Well-Documented Independent Government Cost Estimates (ICGE), per GAO's Cost Estimating Guide
Lack of documented data sources and methodologies in an IGCE puts contracting officers at a disadvantage and could lead to additional, inefficient steps to validate IGCEs. Only two of the agencies in GAO's review had explicit guidance on what details to document in IGCEs, but officials were not always familiar with the available guidance. Instead, according to the officials GAO spoke with, they often follow program office practices and noted that training did not address how to develop and document an IGCE. GAO's cost estimating guidance and federal internal control standards emphasize the need for documentation, with GAO's guidance stating that well-documented cost estimates should describe the data sources used, underlying assumptions, and the estimating methodologies used to derive costs. Without clear guidance or more training on documentation of data sources and methodologies, departments may not be taking full advantage of this important acquisition tool.
Why GAO Did This Study
IGCEs are the government's best estimate of a contract's potential costs—an important tool for both program and contracting officials to provide information when planning for and awarding contracts. IGCEs are particularly critical for service contracts—accounting for more than $270 billion in government contract spending in fiscal year 2015—to ensure the costs associated with labor are fully understood.
GAO was asked to review federal agencies' use of IGCEs. This report examines the extent to which (1) selected departments developed IGCEs for service contracts and (2) selected departments' IGCEs were useful in supporting the acquisition planning process.
To conduct this work, GAO selected six departments that in fiscal year 2015, the most current data available, were among the top spenders on services or had a high percentage of spending on services. GAO reviewed a random non-generalizable sample of 76 service contracts, and compared IGCEs and related documentation with GAO's cost estimating guide. GAO also conducted interviews with contracting and program officials.
Recommendations
To improve the usefulness of IGCEs, GAO is making five recommendations, including that departments revise or clarify guidance or provide more training to help ensure IGCEs are prepared when required and are well-documented with clearly-stated data sources and methodologies. All six departments agreed with GAO's recommendations.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Defense | To ensure that IGCEs are optimized as a tool in the procurement planning process, the Secretaries of Defense and Housing and Urban Development should take steps--such as clarifying guidance, providing additional training, or issuing reminders to officials--to help ensure that guidance on when to prepare an IGCE is followed. |
DOD agreed with the recommendation and stated that it is in the process of developing guidance and training on independent government cost estimates. In February 2018, DOD updated the Independent Government Cost Estimate (IGCE) Handbook for Services Acquisition to clarify guidance on when to prepare an IGCE. The Handbook includes information on when an IGCE is typically prepared in the acquisition planning and contracting process. As a result we closed this recommendation as implemented.
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| Department of Housing and Urban Development | To ensure that IGCEs are optimized as a tool in the procurement planning process, the Secretaries of Defense and Housing and Urban Development should take steps--such as clarifying guidance, providing additional training, or issuing reminders to officials--to help ensure that guidance on when to prepare an IGCE is followed. |
In November 2017, HUD issued an acquisition instruction on independent government cost estimates, which includes instructions on when to prepare an IGCE. HUD officials also presented a session on task based independent government cost estimates at an acquisition summit, which, according to officials, covered the information in the acquisition instruction. As a result, we are closing this recommendation as implemented.
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| Department of Education | To ensure that IGCEs are optimized as a tool in the procurement planning process, the Secretary of Education should consider making Contracts and Acquisitions Management guidance applicable to all agency procurements, and if so, take steps--such as clarifying guidance, providing additional training, or issuing reminders to officials--to help ensure that guidance on when to prepare an IGCE is followed. |
Education agreed with the recommendation. In September 2017, the Deputy Acquisition Officer/Senior Procurement Executive issued an acquisition alert to all heads of contracting activities to implement guidance, standards and other practices regarding the development of independent government cost estimates. The guidance applies to all Department of Education procurements over the simplified acquisition threshold. This action establishes and clarifies department-wide guidance, thus we are closing this recommendation as implemented.
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| Department of Homeland Security | To ensure that IGCEs contain key information consistent with good cost estimating practices, the Secretaries of Defense and Homeland Security should take steps to ensure that IGCE guidance is followed by, for example, providing training or issuing reminders to officials. |
In October 2017, DHS's Office of the Chief Procurement Officer(OCPO) issued an acquisition alert to remind contracting officers that when they receive Independent Government Cost Estimates (IGCEs) that lack the supporting data required by the Homeland Security Acquisition Manual, contracting officers must follow up and request the supporting information. If a requiring office fails to submit the requested information, contracting officers should consider returning the procurement request package citing it as incomplete. DHS officials also said they would provide training on this issue. As a result, we are closing this recommendation as implemented.
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| Department of Defense | To ensure that IGCEs contain key information consistent with good cost estimating practices, the Secretaries of Defense and Homeland Security should take steps to ensure that IGCE guidance is followed by, for example, providing training or issuing reminders to officials. |
DOD agreed with the recommendation and stated that it is in the process of developing guidance and training on independent government estimates. In February 2018, DOD updated the Independent Government Cost Estimate (IGCE) Handbook for Services Acquisition. The Handbook includes information on potential cost estimation methods, general best practices, and available tools. As a result, we closed this recommendation as implemented.
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| Department of Education | To ensure that IGCEs contain key information consistent with good cost estimating practices, the Secretaries of Education, Health and Human Services, Housing and Urban Development, and Labor should revise or clarify guidance to require that IGCEs document data sources, methodology, and assumptions, and take steps to help ensure that guidance is followed by, for example, providing training or issuing reminders to officials to include this information when developing IGCEs. |
Education agreed with the recommendation. In September 2017, the Deputy Chief Acquisition Officer issued guidance to all the heads of contracting activities throughout the department that clarified that independent government cost estimates should document data sources, assumptions, constraints, methodology, and subject matter expert (SME) inputs. Thus, we are closing this recommendation as implemented.
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| Department of Housing and Urban Development | To ensure that IGCEs contain key information consistent with good cost estimating practices, the Secretaries of Education, Health and Human Services, Housing and Urban Development, and Labor should revise or clarify guidance to require that IGCEs document data sources, methodology, and assumptions, and take steps to help ensure that guidance is followed by, for example, providing training or issuing reminders to officials to include this information when developing IGCEs. |
In November 2017, HUD issued an acquisition instruction on independent government cost estimates which includes a requirement to document sources and methodology, and outlines examples that include assumptions used to develop the IGCE. HUD officials also presented a session on task based independent government cost estimates at an acquisition summit, which, according to officials, covered the information in the acquisition instruction. As a result, we are closing this recommendation as implemented.
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| Department of Health and Human Services | To ensure that IGCEs contain key information consistent with good cost estimating practices, the Secretaries of Education, Health and Human Services, Housing and Urban Development, and Labor should revise or clarify guidance to require that IGCEs document data sources, methodology, and assumptions, and take steps to help ensure that guidance is followed by, for example, providing training or issuing reminders to officials to include this information when developing IGCEs. |
HHS agreed with the recommendation and stated that it will revise guidance on independent government cost estimates (IGCEs). In July 2021, HHS issued a policy reminder stating that, regardless of the format used, IGCEs must document the data sources, methodology, and assumptions used to develop the IGCE. HHS distributed this information to the contracting workforce and made it available on its policy website.
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| Department of Labor | To ensure that IGCEs contain key information consistent with good cost estimating practices, the Secretaries of Education, Health and Human Services, Housing and Urban Development, and Labor should revise or clarify guidance to require that IGCEs document data sources, methodology, and assumptions, and take steps to help ensure that guidance is followed by, for example, providing training or issuing reminders to officials to include this information when developing IGCEs. |
DOL agreed with the recommendation and stated that it will review guidance and training on independent government estimates. In May 2018, DOL issued a notice to its contracting officers to implement and distribute its handbook on pre-negotiation objective memorandums (POM). The handbook states that POMs should document the contracting officer's analysis of how the IGCE was developed including assumptions made, information and estimating tools used, where information was obtained, and how previous estimates compared with prices paid. In addition, DOL conducted training on the handbook on June 14, 2018. As a result of these efforts, we are closing this recommendation as implemented.
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| Department of Homeland Security | To ensure that IGCEs are optimized as a tool in the procurement planning process, the Secretaries of Defense, Education, Health and Human Services, Homeland Security, Housing and Urban Development, and Labor should take steps to ensure that, when appropriate, contracting staff document differences between IGCE and final contract award value in the contract file. |
In September 2017, DHS's Office of the Chief Procurement Officer(OCPO) issued a notice about revisions to the Homeland Security Acquisition Manual that require documentation of the difference between the Independent Government Cost Estimates (IGCEs) and the proposal or quote of the apparent successful awardee is 10 percent or greater. In addition, the OCPO issued an alert reminding contracting officers to obtain the required supporting data which is the basis for addressing differences between the IGCE and the contract award price. As a result, we are closing this recommendation as implemented.
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| Department of Education | To ensure that IGCEs are optimized as a tool in the procurement planning process, the Secretaries of Defense, Education, Health and Human Services, Homeland Security, Housing and Urban Development, and Labor should take steps to ensure that, when appropriate, contracting staff document differences between IGCE and final contract award value in the contract file. |
Education agreed with the recommendation. In September 2017, the Deputy Chief Acquisition Officer issued guidance to all the heads of contracting activities throughout the department that requires contracting officers to document the differences between the independent government cost estimates and final contract award value. Thus, we are closing this recommendation as implemented.
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| Department of Defense | To ensure that IGCEs are optimized as a tool in the procurement planning process, the Secretaries of Defense, Education, Health and Human Services, Homeland Security, Housing and Urban Development, and Labor should take steps to ensure that, when appropriate, contracting staff document differences between IGCE and final contract award value in the contract file. |
DOD agreed with the recommendation and stated that it is in the process of developing guidance and training on independent government estimates. In February 2018, DOD updated the Independent Government Cost Estimate (IGCE) Handbook for Services Acquisition to provide additional guidance on documenting an IGCE. The Handbook reminds users to document differences between the IGCE and final award value in the contract file when it is appropriate to do so. As a result, we closed this recommendation as implemented.
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| Department of Housing and Urban Development | To ensure that IGCEs are optimized as a tool in the procurement planning process, the Secretaries of Defense, Education, Health and Human Services, Homeland Security, Housing and Urban Development, and Labor should take steps to ensure that, when appropriate, contracting staff document differences between IGCE and final contract award value in the contract file. |
In November 2017, HUD issued an acquisition instruction that explains that an IGCE is a living document, and that when changes are made the contracting officer should document the revisions and the circumstances that prompted the change. The acquisition instruction also outlines all the different uses of an IGCE, such as price and cost realism of a proposal or to determine if an offeror's proposal is unbalanced. In combination, these elements meet the intent of our recommendation, which is that contracting officers effectively use the IGCE as a tool throughout the procurement process and where appropriate document the differences. Thus, we are closing this recommendation as implemented.
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| Department of Health and Human Services | To ensure that IGCEs are optimized as a tool in the procurement planning process, the Secretaries of Defense, Education, Health and Human Services, Homeland Security, Housing and Urban Development, and Labor should take steps to ensure that, when appropriate, contracting staff document differences between IGCE and final contract award value in the contract file. |
HHS agreed with the recommendation and stated that it will revise guidance on independent government cost estimates (IGCEs). In July 2021, HHS issued a policy reminder to the acquisition workforce, noting that all contracting officers are to ensure that contract files document differences between the IGCE and the final contract award value.
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| Department of Labor | To ensure that IGCEs are optimized as a tool in the procurement planning process, the Secretaries of Defense, Education, Health and Human Services, Homeland Security, Housing and Urban Development, and Labor should take steps to ensure that, when appropriate, contracting staff document differences between IGCE and final contract award value in the contract file. |
The Department of Labor agreed with the recommendation. In May 2018, the Department issued a policy on developing pre-negotiation objective memorandums and price negotiation memorandums. This policy advises contracting officers to analyze the independent government cost estimate prior to negotiations including, among other factors, how the previous estimates compared to prices paid. Contracting officers are then directed to document the results of their analysis. Further, the Department provided training in June 2018 to contracting officers on the new policy, which emphasized documenting the differences between the pre-negotiation objectives and final prices. As a result, we are closing this recommendation as implemented.
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