AT&L and P&R officials estimate  that the new system will be available in fiscal year 2014, with DOD  components reporting on most of their contracted services by fiscal year  2016. For the fiscal year 2011 inventory, DOD components generally  used the same compilation processes used in the previous year. As such,  with the exception of the Army, which already collects contractor  manpower data and other key information using its CMRA data collection  system, the remaining components obtained most of their inventory  information from FPDS-NG, a system that does not collect contractor FTE  information and has other limitations, which limit its utility for purposes of  compiling a complete and accurate inventory. Over the past year and a half, DOD took a number of actions to  implement its November 2011 plan. Further, the Navy and Air Force have each taken steps to develop their  own interim system to collect and store contractor manpower data based  on the Army’s CMRA system. Doing so in a  timely fashion, as well as developing a plan of action with anticipated time  frames and necessary resources, as we have previously recommended,  would help facilitate the department’s stated intent of collecting contractor  manpower data. As of April 2013, 29 of the 31 components certified  that they had completed a review of their inventory. AT&L and P&R  officials stated that the requirement to submit certification letters  represented a significant improvement over prior years’ reviews when  DOD could not determine whether or not the required reviews were  conducted and believed that the letters provided useful insights into the  components’ processes and methodologies for conducting the reviews. In addition, heads of components were required to provide  a letter to P&R by November 25, 2012, certifying completion of the  inventory review and at a minimum include a discussion on the following  six elements: an explanation of the methodology used to conduct the reviews and  criteria for selection of contracts to review; delineation of the results in accordance with all applicable title 10  provisions and the December 2011 guidance;  the identification of any inherently governmental functions or  unauthorized personal services contracts, with a plan of action to  either divest or realign such functions to government performance;  the identification of contracts under which closely associated with  inherently governmental functions are being performed and an  explanation of steps taken to ensure appropriate government control  and oversight of such functions, or if necessary, a plan to either divest  or realign such functions to government performance;  the identification of contracted services that are exempt from private  sector performance in accordance with DOD Instruction 1100.22,  which establishes policies and procedures for determining the  appropriate manpower mix; require special consideration under 10  U.S.C. Components Provided Limited Information in Certification Letters

Our analysis of the 29 component certification letters found that none  discussed all six elements required in guidance. Two components—the Army and Air Force—identified contractors  performing inherently government functions or unauthorized personal  services. The agency did not identify the number of  contractor FTEs, but noted that they had  contractors performing these functions. For example, while DOD indicates that it remains on track to  have a departmentwide data collection system in place in fiscal year  2014, the working group DOD established in January 2013 is still working  on key decisions related to security, funding, and other technological  issues and has not developed an implementation plan with anticipated  time frames and necessary resources to help ensure DOD remains on  track to meet its goals, as we recommended in 2011. For example, the Army identified over 44,000 contractor FTEs  performing work closely associated with inherently government functions,  while 13 components did not identify any instances where contractors  were performing these functions. Having the ability to identify and report instances of contractors  performing inherently governmental functions, unauthorized personal  services, or those closely associated with inherently governmental  functions is one of the key benefits that the inventory is to provide to  DOD, as it allows DOD to ensure contractors are performing appropriate  work and to decide on the appropriate course of action should the reviews  find that not to be the case. However, that value is significantly reduced if  decision-makers have no assurance on whether corrective action was  taken. Recommendations for Executive Action

To ensure that the inventory of contracted services reviews provide  greater context and value to DOD leadership, we recommend that the  Secretary of Defense direct component heads to take the following two  actions:
Comply with DOD’s February 2013 guidance, by ensuring that all  required inventory review data elements, including a comprehensive  description of their inventory review methodology, are addressed in  their certification letters; and
Provide updated information in certification letters on how they  resolved the instances of contractors performing inherently  governmental functions or unauthorized personal services in prior  inventory reviews. To satisfy the mandate for 2012, we assessed (1) the  progress DOD has made in compiling the inventory of contracted services  and the status of efforts to collect contractor manpower data, and (2) the  extent to which the defense components complied with DOD’s December  2011 guidance for reporting on the review of the fiscal year 2011  inventories. However, our previous work identified  data limitations with DOD components using data from the Federal  Procurement Data System-Next Generation (FPDS-NG) as the basis for  their inventories.
Why GAO Did This Study

DOD is the government's largest purchaser of contractor-provided services. In fiscal year 2011, DOD reported $199 billion in obligations for service contracts, which include services as varied as medical services and intelligence support. In 2008, Congress required DOD to compile and review an annual inventory of its contracted services to include the number of contractors providing services to DOD and the functions these contractors were performing. The 2010 National Defense Authorization Act directed GAO to report for 3 years on these inventories.
For this third report, GAO assessed (1) the progress DOD has made in compiling the fiscal year 2011 inventory of contracted services and efforts to collect contractor manpower data, and (2) the extent to which defense components complied with DOD's guidance for reporting on their inventory reviews. GAO reviewed relevant laws and guidance, analyzed inventory submissions from 31 components, reviewed component certification letters, and interviewed DOD acquisition and manpower officials.

What GAO Found

Over the past year and a half, the Department of Defense (DOD) has taken steps to implement its plan to collect contractor manpower data directly from contractors and to develop and implement a department-wide system, based on the Army's existing system, to collect and store these and other inventory data. DOD officials estimate that the data system will be available in fiscal year 2014, with DOD components reporting on most of their service contracts by fiscal year 2016. DOD, however, is still working on key decisions related to security, funding, and other technological issues and has not developed a plan of action with anticipated time frames and necessary resources to help ensure DOD remains on track to meet its goals. Making timely decisions and developing a plan of action with anticipated timeframes and necessary resources, as GAO has previously recommended, would facilitate DOD's stated intent of implementing a DOD-wide system to collect required inventory information. For the fiscal year 2011 inventory, DOD components generally used the same compilation processes used in the previous year. As such, with the exception of the Army, which already has an inventory data collection system, the remaining components relied primarily on the Federal Procurement Data System-Next Generation (FPDS-NG). GAO previously reported that FPDS-NG has several limitations, including the inability to identify more than one type of service in a contract or the number of contractor full-time equivalents (FTE), which limit its utility for purposes of compiling a complete and accurate inventory.
Consistent with DOD's December 2011 guidance, 29 of the 31 components submitted letters certifying that they had conducted an inventory review as of April 2013. DOD officials stated that the requirement to submit certification letters represented a significant improvement over prior years' reviews, when DOD could not determine whether the required reviews were conducted. These officials also stated that the letters provided useful insights into the components' efforts. GAO's analysis, however, indicates that none of the components' certification letters discussed all six elements required by DOD's guidance. For example, GAO's analysis found that the letters generally provided only limited information on their review methodologies or the results of their review efforts. In addition, it is unclear based on the information provided in the certification letters the extent to which the differences in the methodologies components used to conduct the reviews contributed to the variation in the identification of contractors performing inherently governmental functions, unauthorized personal services, or closely associated with inherently governmental functions. For example, the Army, using its review process, identified over 44,000 contractor FTEs performing closely associated with inherently governmental functions, while the Air Force identified about 1,400 contractor FTEs and 13 components reported they had no contractors performing these functions. Further, the Army and the Air Force did not provide complete information on actions taken to resolve instances where they had identified contractors performing inherently governmental functions as part of their reviews, such as by transferring performance of these functions to DOD personnel or modifying the contract's statement of work. The ability to identify contractors performing these functions is valuable as it allows actions to be taken, but that value is significantly reduced if decision-makers have no assurance as to whether corrective actions were taken.

What GAO Recommends

GAO recommends that the Secretary of Defense direct component heads to discuss in their certification letters all required inventory review elements, as well as how instances where contractors are performing inherently governmental functions were resolved. DOD generally concurred with our recommendations, but indicated that the Secretarys involvement was not necessary. GAO believes it is, as discussed in the report.