Contract Costs Increased, Primarily Due to Added Requirements to Support Ongoing Operations in Iraq and Afghanistan

For six of the seven contracts we reviewed, actual costs exceeded the  initially estimated contract costs, primarily because of added requirements  to support ongoing operations in Iraq and Afghanistan. Costs for these six contracts—three of which were extended—increased  from an initial estimate of $783 million to an approximate actual total cost  of $3.8 billion. Linguist Services

In April 1999, the Army awarded a contract for linguist translation and  interpretation services. Global Maintenance and Supply Services in Kuwait—Task Order 0001

In October 2004, the Army issued this task order for equipment  maintenance and supply services in Kuwait under an umbrella indefinite- delivery/indefinite-quantity contract for Global Maintenance and Supply  Services. Likewise, in September  2005 a requirement was added to the task order for tire assembly and  repair. For example, in  option years one and two, funding for the reset of equipment totaled  approximately $54.2 million and $50.1 million, respectively. To meet the  increased demands, additional contractor personnel were needed. Other Factors That Caused Cost Growth

Other factors that contributed to individual contract cost growth among  the contracts we reviewed included (1) short-term contract extensions, (2)  the government’s inability to provide promised equipment, (3) changes in  host country labor laws, and (4) having to pay for work to be performed  multiple times because it did not meet required standards. The contractors felt it was too risky to  obtain long-term leases for such things as vehicles and housing because  there was no guarantee that the contract would be extended again. DOD’s Oversight of Some Contracts Has Been Inadequate

DOD’s oversight of some of the contracts we reviewed has been  inadequate because of a shortage of qualified oversight and contract  administration personnel and because it did not maintain some contract  files in accordance with applicable policy and guidance. Additionally, we found that  for four of the contracts we reviewed, the contracting offices either did  not maintain complete contract files documenting contract administration  and oversight actions taken or did not follow quality assurance guidance. Due to the vacant property  administrator position, some proper accounting of government-owned  equipment was not performed. However, according to  oversight officials, assigned contract oversight personnel for the linguist  contract were unable to judge the performance of the contractor  employees because they were generally unable to speak the languages of  the contractor employees they were responsible for overseeing. Without adequate levels of qualified oversight  personnel, complete and organized contract files, and consistent  implementation of quality assurance principles, DOD’s ability to perform  the various tasks needed to monitor contractor performance may be  impaired. DOD Used Contractors Because Military Personnel and DOD Civilians Were Not Available

DOD uses contractors to support contingency operations for several  reasons, including the need to compensate for a decrease in the size of the  force and a lack of expertise within the military services. For five of the seven contracts, DOD lacked sufficient  personnel to meet increased requirements for services to support  operations in Iraq and Afghanistan. According to Army officials, years  ago the military did not anticipate such a large requirement for Arabic  speakers. In May 2007 we reported that DOD and service officials attributed the  increased use of contractors for support services to several factors,  including (1) increased operations and maintenance requirements from  the global war on terror and other contingencies, which DOD has met  without an increase in active duty and civilian personnel; (2) federal  government policy, which is to rely on the private sector for needed  commercial services that are not inherently governmental in nature; and  (3) DOD initiatives, such as its competitive sourcing and utility  privatization programs. We also recommend that the Secretary of Defense direct each of the  service secretaries to conduct a review of the contract administration  functions that support contingency operations contracts to determine the  prevalence of inadequate contract oversight and administration staffing  levels and the extent to which guidance for maintaining contract files and  quality assurance principles are not being consistently followed and take  corrective actions as necessary. However, as we reported, the Army did not always  document unacceptable contractor performance. To determine the extent to which DOD provided oversight of contracts  that support contingency operations, we reviewed a variety of quality  assurance and contract management regulations and guidance, including  the Federal Acquisition Regulation, the Defense Federal Acquisition  Regulation Supplement, the Army Quality Program regulation, and DOD’s  Guidebook for Performance-Based Services Acquisition in the Department  of Defense.
Why GAO Did This Study

The Department of Defense (DOD) uses contractors to meet many of its logistical and operational support needs. With the global war on terrorism, there has been a significant increase in deployment of contractor personnel to areas such as Iraq and Afghanistan. In its fiscal year 2007 report, the House Appropriations Committee directed GAO to examine the link between the growth in DOD's operation and maintenance costs and DOD's increased reliance on service contracts. GAO determined (1) the extent to which costs for selected contracts increased and the factors causing the increases, (2) the extent to which DOD provided oversight for selected contracts, and (3) the reasons for DOD's use of contractors to support contingency operations. To address these objectives, GAO reviewed a nonprobability sample of seven DOD contracts for services that provide vital support to contingency operations in Iraq and Afghanistan. GAO reviewed contract requirements, funding documents and DOD guidance for these contracts and interviewed DOD and contractor personnel.

What GAO Found

Costs for six of the seven contracts GAO reviewed increased from an initial estimate of $783 million to about $3.8 billion, and one consistent and primary factor driving the growth was increased requirements associated with continued military operations in Iraq and Afghanistan. For example, the Army awarded a $218.2 million task order for equipment maintenance and supply services in Kuwait in October 2004. Since then, approximately $154 million of additional work was added to this task order for vehicle refurbishment, tire assembly and repair, and resetting of prepositioned equipment. Other factors that increased individual contract costs include the use of short-term contract extensions and the government's inability to provide contractually required equipment and services. For example, in three of the contracts GAO reviewed, short-term contract extensions (3 to 6 months) increased costs because the contractor felt it was too risky to obtain long-term leases for vehicles and housing. The actual cost of one contract we reviewed did not exceed the estimated cost for reasons such as lower than projected labor rates. GAO has frequently reported that inadequate staffing contributed to contract management challenges. For some contracts GAO reviewed, DOD's oversight was inadequate because it had a shortage of qualified personnel and it did not maintain some contract files in accordance with applicable guidance. For five contracts, DOD had inadequate management and oversight personnel. In one case, the office responsible for overseeing two contracts was short 6 of 18 key positions, all of which needed specialized training and certifications. In addition, for two other contracts, proper accounting of government owned equipment was not performed because the property administrator position was vacant. Second, DOD did not always follow guidance for maintaining contract files or its quality assurance principles. For four contracts, complete contract files documenting administration and oversight actions taken were not kept and incoming personnel were unable to determine how contract management and oversight had been performed and if the contractor had performed satisfactorily prior to their arrival. In addition, oversight was not always performed by qualified personnel. For example, quality assurance officials for the linguist contract were unable to speak the language so they could not judge the quality of the contractor's work. Without adequate levels of qualified oversight personnel, proper maintenance of contract files, and consistent implementation of quality assurance principles, DOD may not be able to determine whether contractors are meeting their contract requirements, which raises the potential for waste. DOD used contractors to support contingency operations for several reasons, including the need to compensate for a decrease in force size and a lack of capability within the military services. For example, an Army contract for linguist services had a requirement for more than 11,000 linguists because DOD did not have the needed linguists. According to Army officials, the Army phased out many interpreter positions years ago and did not anticipate a large need for Arabic speakers.