The inventory is to include a number of specific data elements for each  identified activity, including  the function and missions performed by the contractor; the contracting organization, the component of DOD administering the  contract, and the organization whose requirements are being met  through contractor performance of the function;  the funding source for the contract by appropriation and operating  agency; the fiscal year the activity first appeared on an inventory;  the number of contractor employees (expressed as full FTEs) for  direct labor, using direct labor hours and associated cost data  collected from contractors; a determination of whether the contract pursuant to which the activity  is performed is a personal services contract; and a summary of the information required by section 2330a(a) of title 10  of the U.S. Code. Prior GAO Work

We have issued several reports on DOD’s efforts to compile and review  its inventory of contracted services, including initiatives to standardize  contractor manpower data collection across the department. DOD Components’ Certification Letters Included More Required Information, but Reviews May Understate Contractors Performing Closely Associated with Inherently Governmental Functions

We found that DOD components’ 2013 inventory review certifications  better addressed required reporting elements than in prior years;  however, for the second consecutive year, the Air Force, which accounts  for about 20 percent of DOD’s obligations for contracted services, did not  submit a certification letter. For example, the Army identified nearly 80  percent of its contracts for certain types of services as including such  functions. Overall, our analysis found that at  least 12 of the 28 contract actions we reviewed appeared to include  closely associated with inherently governmental functions, but—of those  12—DOD identified only one prior to contract award and only two during  the inventory review process as including such functions. In  turn, without accurate identification of the number of contractors  performing these functions, DOD cannot be assured that proper oversight  is in place or provide data to ensure that it is meeting statutory  requirements to reduce, to the maximum extent practicable, the number  of contractors performing closely associated with inherently governmental  functions. DOD concurred with this recommendation,  but the military departments have not appointed an accountable official  responsible for coordinating these efforts as of September 2015. As such, Navy officials stated that they relied on FPDS-NG  rather than its CMRA to compile its inventory for fiscal year 2013. A  good internal control environment requires, in part, that an agency’s  organizational structure to clearly define key areas of authority and  responsibility and establish appropriate lines of reporting. In contrast, the Navy and other defense agencies  identified about 13 percent of their contracts as doing so in these same  codes. The lack of documentation on whether a proposed contract  includes closely associated with inherently governmental functions may  result in inventory review processes incorrectly reporting these contracts. We continue to believe that implementing the  recommendations we previously made to do so would facilitate the use of  the inventory for decision-making purposes. Recommendations for Executive Action

To ensure proposed contract activities, as reflected in the statement of  work and other contract documents, are assessed against the criteria  provided by the FAR and OFPP policy, we recommend that the Under  Secretary for Defense for Acquisition, Technology, and Logistics ensure  that the Director of the Office of Defense Procurement and Acquisition  Policy provide clear instructions, in a timely manner, on how the service  requirement review boards are to identify whether contract activities  include closely associated with inherently governmental functions; and require acquisition officials to document, prior to contract award,  whether the proposed contract action includes activities that are  closely associated with inherently governmental functions. To help facilitate the collection and use of inventory data in decision- making processes, we recommend that the Under Secretary of Defense  for Personnel and Readiness clearly identify the longer term relationships  between the support office, military departments, and other stakeholders. To assess the extent to which DOD components have developed plans  and processes to use the inventory to inform management decisions  pursuant to subsection (f), we used the data we collected for our  November 2014 report on this issue to establish the extent to which each  military department’s strategic workforce planning, manpower mix, and  budgeting guidance and documentation required or cited the use of the  inventory of contracted services.
Why GAO Did This Study

DOD is the government's largest purchaser of contractor-provided services. In 2008, Congress required DOD to compile and review an annual inventory of its contracted services to identify the number of contractors and the functions contractors performed. In 2011, Congress required DOD to use that inventory to inform certain decision-making processes. GAO has previously reported on the challenges DOD faces in compiling, reviewing, and using the inventory.
Congress included a provision in statute for GAO to report on the required DOD reviews and plans to use these inventories. For this report, GAO assessed the extent to which DOD components (1) reviewed contracts and activities in the fiscal year 2013 inventory of contracted services and (2) developed plans to use the inventory for decision-making. GAO reviewed relevant laws and guidance; 35 component inventory certification letters and 28 contract actions for services categorized as often supporting inherently governmental functions; and interviewed DOD acquisition, manpower, and programming officials.

What GAO Found

The Department of Defense (DOD) continues to face challenges in ensuring that it fully reviews its inventory of contracted services. As of September 2015, 35 of 37 components certified they had done so and generally addressed more of the review elements required by DOD guidance than in prior years. For the second consecutive year, however, the Air Force did not submit a certification letter. Further, components may be inaccurately reporting on the extent to which contractors were providing services that are closely associated with inherently governmental functions, a key review objective to help ensure that DOD has proper oversight in place. The Office of Federal Procurement Policy indicates that certain contracted services—such as professional and management support—are more likely to include such functions. In fiscal year 2013, the Army reported that nearly 80 percent of the $9.7 billion it obligated for these types of services included closely associated with inherently governmental functions. In contrast, the Navy and other DOD agencies reported about 13 percent of the $10.7 billion obligated for similar contracted services included such functions.
GAO's review found that the lack of documentation on whether a proposed contract included such functions may result in inventory review processes incorrectly reporting these contracts. At least 12 of the 28 contract actions GAO reviewed appear to include these functions, but—of those 12—DOD components identified only one prior to contract award and only two during the review process as such. Without accurate identification of the functions contractors are performing, DOD cannot be assured that proper oversight is in place or provide data on the activities and functions contractors are performing.
Military departments have not developed plans to facilitate the use of the inventory for workforce planning or budgetary decisions nor have they appointed an accountable official to help do so, as DOD previously stated they intended to do. Further, DOD has not outlined the relationships between a management support office, military departments, and other stakeholders to facilitate the collection and use of inventory data in decision-making processes. Internal control standards state that management should define key areas of authority and responsibility to achieve management objectives and to comply with laws.

What GAO Recommends

GAO recommends that DOD focus increased attention on contracts more likely to include services closely associated with inherently governmental functions during the review process, document whether proposed contracts include such functions, and clarify the relationships between the support office and key stakeholders. DOD concurred with GAO's recommendations.