	DOD Increasingly Relies on Contractor- Provided Services

Over the past decade, DOD has increasingly relied on contractors to  provide a range of mission-critical services from operating information  technology systems to providing logistical support on the battlefield. The  growth in spending on services clearly illustrates this point. DOD’s  obligations on service contracts, expressed in constant fiscal year 2006  dollars, rose from $85.1 billion in fiscal year 1996 to more than $151 billion  in fiscal year 2006, a 78 percent increase. Overall, however, our work found that to a large  degree, this growth simply happened and was not a managed outcome. As the amount and complexity of contracting for services have increased,  the size of the civilian workforce has decreased. More significantly, DOD  carried out this downsizing without ensuring that it had the requisite skills  and competencies needed to manage and oversee service acquisitions. That model will be deployed  this year. Too often, the  department obtains services based on poorly defined requirements and  inadequate competition. Further, DOD’s management and use of  contractors supporting deployed forces suffers from the lack of clear and  comprehensive guidance, among other shortfalls. Collectively, these  problems expose DOD to unnecessary risk, complicate efforts to hold  DOD and contractors accountable for poor acquisition outcomes, and  increase the potential for fraud, waste, or abuse of taxpayer dollars. For  example, we noted in April 2006 that DOD awarded contracts for security  guard services supporting 57 domestic bases, 46 of which were done on an  authorized, sole-source basis. The sole-source contracts were awarded by  DOD despite recognizing it was paying about 25 percent more than  previously paid for contracts awarded competitively. If surveillance is not conducted, not  sufficient, or not well documented, DOD is at risk of being unable to  identify and correct poor contractor performance in a timely manner and  potentially paying too much for the services it receives. The lack of visibility on the extent of services provided by contractors to  deployed forces contributes to this condition. Our work, as well as that of the Inspectors General, found competition- related issues on DOD’s use of interagency contracting vehicles. We identified several causes for the lack of sound practices. DOD’s current approach to acquiring  services suffers from the absence of key elements at the strategic and  transactional levels and does not position the department to make service  acquisitions a managed outcome. In  particular, DOD noted that it is reassessing its strategic approach to  acquiring services, including examining the types and kinds of services it  acquires and developing an integrated assessment of how best to acquire  such services. At this point, DOD does  not know how well its services acquisition processes are working, which  part of its mission can best be met through buying services, and whether it  is obtaining the services it needs while protecting DOD’s and the  taxpayer’s interests.
Why GAO Did This Study

The Department of Defense (DOD) is relying more and more on contractors to provide billions of dollars in services. Congress has pushed DOD to employ sound business practices when using the private sector for services. This testimony discusses DOD's (1) increasing reliance on contractors; (2) efforts to follow sound business practices when acquiring services; and (3) actions to improve its management and oversight of services. This testimony is based on GAO's work spanning several years as well as recent reports issued by the Inspectors General.

What GAO Found

Over the past decade, DOD has increasingly relied on contractors to provide a range of mission-critical services from operating information technology systems to providing logistical support on the battlefield. The growth in spending on services clearly illustrates this point. DOD's obligations on service contracts, expressed in constant fiscal year 2006 dollars, rose from $85.1 billion in fiscal year 1996 to more than $151 billion in fiscal year 2006, a 78 percent increase. While obligations increased, the size of the civilian workforce decreased. Moreover, DOD carried out this downsizing without ensuring that it had the requisite skills and competencies needed to manage and oversee service acquisitions. Overall, our work found that to a large degree, this growth in spending on services simply happened and was not a managed outcome. The lack of sound business practices--poorly defined requirements, inadequate competition, the lack of comprehensive guidance and visibility on contractors supporting deployed forces, inadequate monitoring of contractor performance, and inappropriate use of other agencies' contracts and contracting services--expose DOD to unnecessary risk, waste resources, and complicate efforts to hold contractors accountable for poor service acquisition outcomes. For example, DOD awarded contracts for security guard services supporting 57 domestic bases, 46 of which were done on an authorized, sole-source basis. The sole-source contracts were awarded by DOD despite recognizing it was paying about 25 percent more than previously paid for contracts awarded competitively. Further, the lack of sufficient surveillance on service contracts placed DOD at risk of being unable to identify and correct poor contractor performance in a timely manner and potentially paying too much for the services it receives. Overall, DOD's management structure and processes overseeing service acquisitions lacked key elements at the strategic and transactional levels. DOD has taken some steps to improve its management of services acquisition, including developing a competency model for its contracting workforce; issuing policies and guidance to improve its management of contractors supporting deployed forces and its use of interagency contracts; and developing an integrated assessment of how best to acquire services. DOD leadership will be critical for translating this assessment into policy and, most importantly, effective frontline practices. At this point, DOD does not know how well its services acquisition processes are working, which part of its mission can best be met through buying services, and whether it is obtaining the services it needs while protecting DOD's and the taxpayer's interests.