FPDS-NG reports that the federal  government obligated approximately $1.5 billion on personal services  contracts from fiscal years 2011 through 2015. The FAR enumerates the characteristics of personal services contracts:
Performance on a government site,
Principal tools and equipment furnished by the government,
Services applied directly to the agency mission,
Comparable services are performed in similar agencies using civil
The need for the type of service can reasonably be expected to last  more than 1 year, and
The nature of the service or the way that it is performed reasonably  requires government direction or supervision of the contractor’s  employees to adequately protect the government’s interest, retain  control of the function, or retain full responsibility for the function. DOD concurred with GAO’s recommendations. Specifically, although FPDS-NG reports  that DOD spent about $118 million on personal services contracts in fiscal  year 2015, we found that personal services contract obligations from the  Air Force and Army were overstated in the FPDS-NG data because they  included obligations that were not for personal services contracts. We confirmed  this with Air Force officials. All of the contracts  we reviewed were for health care-related services at U.S. Personal and Nonpersonal Services Contracts Can Be Difficult to Distinguish from Each Other

Apart from the inaccuracies and differences in data reported in FPDS and  the inventories of contracted services, it is also possible that personal  services contracts could be undercounted because nonpersonal services  contracts could be administered in a manner that results in their actually  being personal services contracts and potentially unauthorized personal services contracts. USAID Cited Incorrect Authority for Personal Services Contracts, and USAID and DOD Use the Contracts for Different Purposes

USAID and DOD have multiple authorities available for awarding personal  services contracts. However, contract files at USAID did not cite the  correct authority for the 15 contracts we reviewed. USAID and DOD Use Personal Services Contracts for Different Purposes

USAID’s personal services contracts that we reviewed cover a broad  range of activities including program management, security analysis, and  logistics, among others. According to DOD officials, it is not DOD’s practice  to assign personal services contractors to perform inherently  governmental tasks. These  tasks are considered inherently governmental, according to the FAR  and OFPP Policy Letter 11-01. USAID has  taken initial steps to revise its documentation but has not yet developed a  process to determine whether the steps taken will result in increased  accuracy. The Secretary of Defense direct the Secretaries of the Air Force and  the Army take steps to ensure the accurate recording of personal  services contracts in the Federal Procurement Data System-Next  Generation. Appendix I: Objectives, Scope, and Methodology

This report examines (1) the extent to which selected agencies award  personal services contracts; and (2) how those agencies use personal  services contracts. We also identified the four agencies—the Air Force, Army, and Navy  within the Department of Defense (DOD), and the United States Agency  for International Development (USAID)—with the highest obligations for  personal services contracts using FPDS-NG data. These agencies  account for nearly 60 percent of the spending on such contracts in fiscal  year 2014. Fiscal year 2014 was the latest year with  certified inventory data, at the time of our review. Based on our review of the FPDS-NG data, reviews of the selected  service contract inventory data, selected contract files, and interviews  with DOD and USAID officials, we determined that the FPDS-NG data are  not sufficiently reliable for comparing obligations from year to year for  personal services contracts or for determining the extent to which DOD  awarded personal services contracts. To further explore the differences  in how these agencies use personal services contracts and other types of  service contracts, we also reviewed a different nongeneralizable random  sample of 40 contracts that were coded as engineering and technical  services, or other professional services contracts awarded by the Air  Force, Army, Navy, and USAID in fiscal year 2014 (10 contracts from  each agency).
Why GAO Did This Study

A personal services contract is one that makes contractor personnel appear to be government employees. These contracts must be authorized by federal law. According to FPDS-NG, the government reported obligating about $1.5 billion on personal services contracts in fiscal years 2011 through 2015.
GAO was asked to examine the federal government's use of personal services contracts. This report discusses (1) the extent to which selected federal agencies award personal services contracts, and (2) how those agencies use them.
GAO identified the four agencies spending the most on personal services contracts—the Air Force, Army, Navy, and USAID—as reported in FPDS-NG. These agencies account for about 60 percent of total spending on these contracts. GAO also reviewed the service contract inventories these agencies prepared for fiscal year 2014, the latest year available at the time of this review. GAO reviewed the files for a nongeneralizable sample of 60 personal (15 at each agency) and 40 nonpersonal services contracts (10 at each agency) and interviewed agency officials. GAO did not review the administration of the contracts.

What GAO Found

The United States Agency for International Development (USAID) spent more than $123 million on personal services contracts in fiscal year 2015, according to the Federal Procurement Data System-Next Generation (FPDS-NG). But GAO cannot confirm the extent that personal services contacts are awarded by the Department of Defense (DOD) because GAO identified significant reporting errors at two DOD agencies—the Air Force and the Army. Specifically, 4 of the 15 Air Force contracts and 13 of the 15 Army contracts GAO reviewed were incorrectly recorded in FPDS-NG as personal services contracts. Defense officials agreed with this assessment. Further, the fiscal year 2014 inventories of contracted services at Air Force, Army, and Navy contained personal services contracts not captured in FPDS-NG, as shown in the figure below. Apart from the inaccuracies of the reported data, GAO observed and agency officials agreed that additional undercounting could exist since some contracts for nonpersonal services could become personal services contracts, depending on whether the contract involves direct supervision by government employees. In the absence of accurate data, proper management of personal services and other contracts becomes more difficult.
Military departments and USAID use personal services contracts differently. DOD personal services contracts GAO reviewed were mostly for health care services. As permitted under its regulations, USAID uses personal services contracts for a broader range of functions such as program management, security analysis, and logistics, some of which are considered tasks that only government employees should perform—inherently governmental activities. Federal regulations that prohibit contractors from performing such activities do not apply to authorized personal services contracts. DOD's practice is not to use personal services contracts for inherently governmental tasks. DOD and USAID have multiple authorities for awarding personal services contracts, but none of the files GAO reviewed at USAID cited the correct authority for personal services contracts performed in the United States. USAID has taken steps to address this issue but has not yet determined whether these steps will be effective.

What GAO Recommends

GAO recommends that the Secretary of Defense direct the Air Force and Army to take steps to ensure the accurate recording of personal services contracts in FPDS-NG; and that USAID ensure the correct authority is cited for personal services contracts performed in the United States. DOD and USAID concurred with our recommendations.