This annual inventory submission includes,  among other things, the number of contractor full time equivalents and the  associated direct labor cost for these positions. The section 808 requirement to reduce funding for closely associated with  inherently governmental functions and staff augmentation expired in  September 2013; however, Congress modified the requirements in  section 802 of the NDAA for Fiscal Year 2014, extending the time period  for DOD to implement the full 20 percent reduction for both the closely  associated with inherently governmental and staff augmentation functions  through fiscal year 2014. DOD Exceeded the Contract Services Spending Limit in 2012 and Adhered to the Limit in 2013, but Varied Implementation of Fiscal Controls Hampered Some Efforts

DOD exceeded its spending limit by $1.72 billion in fiscal year 2012 and  spent approximately $500 million less than its limit in fiscal year 2013. After exceeding the spending targets in fiscal year  2012, some components improved planning and implemented stronger  fiscal controls over contract services, such as monitoring spending during  the year and prioritizing mission needs to assist in funding decisions,  helping DOD meet its spending limit for fiscal year 2013. We found that budget officials from the components that met their  spending targets in fiscal year 2013 implemented improved planning and  oversight of contract services spending. An Army  manpower official said commands have generated contract services  spending estimates through the Army’s inventory of contracted services  that could have been used by the budget office to inform contract services  targets. Standards for Internal Control in the Federal Government call for  government agencies to take actions to ensure accountability and  stewardship of the government’s resources. Improved planning and consistent  implementation of fiscal controls across the department could better  enable DOD to manage contract services spending and achieve future  savings. Accuracy of Funding Reductions for Closely Associated with Inherently Governmental Functions Could Not Be Determined

Comparable and timely data are not available to determine if DOD  implemented the mandated funding reductions for contractor performance  of closely associated with inherently governmental functions. However, two years of obligation data will not be  available until after the statutory requirement has expired in September  2014. The Extent to Which DOD Has Implemented Staff Augmentation Reductions Is Not Yet Known

DOD has not yet determined if funding reductions in staff augmentation— contractors under the direction of a government official other than a  contracting officer—were implemented due to insufficient guidance and  management attention. In response to section  802 of the NDAA for Fiscal Year 2014 that requires DOD to implement  reductions in 2014 if they were not achieved in 2012 and 2013, DOD  issued supplemental guidance in May 2014 instructing components to  report on actions taken to implement staff augmentation reductions in  their fiscal year 2013 inventory review certification letters. However, this  guidance did not provide any direction to the components on how to apply  the statutes definition of staff augmentation or the data that should be  used to measure compliance with the requirement. Appendix I: Objectives, Scope and Methodology

The objectives for this review were to determine the extent to which the  Department of Defense (DOD) implemented the requirements of section  808 of the National Defense Authorization Act (NDAA) for Fiscal Year  2012, in fiscal years 2012 and 2013 to (1) limit its service contract  spending, (2) reduce funding for closely associated with inherently  governmental functions by 10 percent each year, and (3) reduce funding  for staff augmentation contracts by 10 percent each year.
Why GAO Did This Study

In fiscal year 2013, DOD reported spending more than $170 billion on contract services—contractors performing functions such as information technology support or maintenance of military equipment—constituting more than half of DOD's total acquisition spending. The National Defense Authorization Act (NDAA) for Fiscal Year 2012, section 808, limited DOD's contract services spending for fiscal years 2012 and 2013 and required reductions in select contract services. Subsequent revisions to the NDAA extended the spending limits through fiscal year 2014.
Congress requested and mandated GAO to review DOD's implementation of the required reductions. This report addresses the extent to which DOD implemented, in fiscal years 2012 and 2013: (1) contract services spending limits, (2) 10 percent funding reductions for closely associated with inherently governmental functions, and (3) 10 percent funding reductions for staff augmentation contracts. GAO reviewed relevant guidance; analyzed DOD financial, inventory, and other contract services data; and interviewed relevant officials.

What GAO Found

The Department of Defense (DOD) exceeded its identified limit on contract services by $1.72 billion in 2012 and spent $500 million less than the limit in 2013. GAO found that all military departments exceeded their Comptroller-provided spending targets in fiscal year 2012 due to late guidance. In fiscal year 2013, some components improved planning and implemented stronger fiscal controls over contract services, such as monitoring spending during the year, helping DOD meet its limit for fiscal year 2013. However, the Army exceeded its spending target in 2013 due to inaccurate budget estimates and weaknesses in planning by not soliciting inputs on commands' contract services spending plans.
Federal internal control standards call for effective control activities that enforce guidance to help ensure stewardship of government resources. Improved planning and consistent implementation of fiscal controls across the department could better position DOD to manage contract services spending.
Comparable and timely data are not available to determine if DOD implemented the mandated funding reductions for contracts with closely associated with inherently governmental functions—those that put the government at risk of contractors inappropriately influencing government decisions. DOD's guidance calls for reliance on data from the annual inventory of contracted services—an identification of the number of contractors and associated costs for services provided to DOD—to measure required reductions; however, these data did not include the obligation data needed to measure funding reductions in closely associated with inherently governmental functions. DOD updated its inventory guidance in 2013 to collect such information, but these data will not be comparable to previous years due to changes in methodology and will not be available until fiscal year 2015, after the statutory requirement has expired.
Similarly, data are not available to determine if DOD met the required funding reductions for staff augmentation contracts—contractors under the direction of a government official. DOD's guidance did not establish a baseline for staff augmentation or identify the data that should be used to determine if the reductions were achieved. DOD issued supplemental guidance in May 2014 instructing components to report in October 2014 on steps taken to implement these reductions. However, the current statutory requirement expired in September 2014.

What GAO Recommends

Congress should consider extending the time period for DOD's implementation of funding reductions in select contract functions. Further, GAO recommends that DOD improve planning and consistently implement fiscal controls to better manage contract services, among other actions. DOD concurred with the recommendations.