We found some cases where guidance dictated that an IGCE  should have been prepared, but was not. Department-level Guidance Varies on When to Prepare IGCEs

All of the departments in our review have some type of guidance on  IGCEs available—ranging from regulation to COR handbooks to  checklists—with different emphasis on whether an IGCE is required. The Usefulness of IGCEs in Acquisition Planning Varied, and Most Did Not Include Supporting Documentation

In the 62 contracts we reviewed with IGCEs, the usefulness of IGCEs in  acquisition planning varied and most did not include supporting  documentation with details, such as the information sources and  methodologies used, that could help contracting officers more effectively  use IGCEs. Most of the IGCEs in GAO’s review—49 of 62—were not  well-documented, which in some cases limited their usefulness to  contracting officers; these officers had to perform additional, inefficient  steps to validate IGCEs so they could be used. Only two of the agencies  in our review (Army and DHS) had department-level guidance on what  details to document in the IGCEs. Understand funding needs. The usefulness of this tool—when used to determine  price reasonableness—depends in part on the quality of the estimate,  which can differ from the contract value at award for a variety of reasons. Limited data sources. Most IGCEs Lacked Supporting Documentation

GAO cost estimating guidance and federal internal control standards  emphasize the need for documentation, with GAO’s cost estimating  guidance stating that well-documented cost estimates describe the data  sources used, underlying assumptions, and the estimating methodologies  used to derive costs. Departments’ Guidance and Training Do Not Consistently Emphasize How to Develop or Document IGCEs

Federal internal control standards state that agencies should internally  communicate quality information to achieve their objectives, which can  include developing guidance for IGCEs, following existing IGCE  guidance, or providing training to support guidance. In the other departments in our review, guidance did not  clearly state that IGCEs should contain all the elements of a good  estimate per GAO’s cost estimating guide. In some cases, program officials said they had developed templates to  prepare an IGCE for their individual acquisitions for a service. To ensure that IGCEs contain key information consistent with good cost  estimating practices, we recommend that the Secretaries of Education,  Health and Human Services, Housing and Urban Development, and  Labor take the following action:
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. Objectives, Scope and Methodology

This report addresses the extent to which (1) selected departments  developed independent government cost estimates (IGCE) for service  contracts, and (2) selected departments’ IGCEs were useful in supporting  the acquisition planning process. To address both objectives, we reviewed a random, non-generalizable  sample of 76 contracts and task orders from six federal departments—the  Departments of Defense (DOD), Education, Health and Human Services  (HHS), Homeland Security (DHS), Housing and Urban Development  (HUD), and Labor—and interviewed program and contracting officials  associated with each award. Using FPDS- NG data, we selected six departments with the following characteristics:
Highest total obligations for services: DOD, HHS, and DHS were  among the top five federal agencies with obligations for service  contracts in fiscal year 2015.
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.

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) .
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.

What GAO Recommends

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.