DOD and military department officials identified continuing  limitations associated with the fiscal year 2009 inventories, including the  inability of FPDS-NG, which was to be used by DOD components other  than the Army, to provide information for all of the required data  elements. The department has stated that it plans to move towards  collecting such data from contractors as the basis for future inventories,  but it has not issued guidance or a plan of action for doing so. DOD Implemented a More Uniform Approach to Compile Its Fiscal Year 2009 Inventories

In May 2010, AT&L issued guidance that provided more uniform direction  to be used by DOD components other than the Army to compile their fiscal  year 2009 inventories, while allowing the Army to continue using its  existing process that reports manpower data collected directly from its  contractors. AT&L noted that the move towards a more uniform approach  in fiscal year 2009 was meant to reduce inconsistencies that resulted from  DOD components using different approaches in fiscal year 2008 and was  an interim measure for circumstances in which actual contractor  manpower data have not been collected. However, the changes in DOD’s approach, in particular how DOD  reflected research and development services, and the use of a new formula  for estimating contractor FTEs, affected the reported changes in inventory  data from fiscal years 2008 to 2009. In addition,  the guidance stated that AT&L planned to work with the Office of the  Under Secretary of Defense for Personnel and Readiness and the Office of  Cost Assessment and Program Evaluation to issue preliminary guidance  and a proposed plan of action by August 2010. Military Departments Differ in How They Have Reviewed and Used the Inventories

The military departments differ in their approaches to the required reviews  of the activities performed by contractors and in the extent to which they  have used the inventories to inform workforce decisions, including in- sourcing. In contrast, the Air  Force and Navy have implemented decentralized approaches that rely on  their major commands to review the activities performed by contractors  listed in their inventories and report the results back to their respective  headquarters. These challenges will  likely cause its approach to evolve in the future. The Navy issued guidance to its  commands in September 2010, but the results of the Navy’s initial review  had not yet been reported as of November 2010. The Army Has Implemented a Centralized Approach to Review Contracts and Activities in Its Inventory

The Army has implemented a centralized approach that relies on two  processes—a review prior to contract award and a headquarters-level  review of all functions performed by contractors—to meet the  requirement to annually review the service contracts and activities in its  inventory. Conclusions

DOD has acknowledged the need to rebalance its workforce, in part by  reducing its reliance on contractors. DOD officials also expressed concern  about the type of data that can be obtained through the FPDS-NG to meet  the inventory requirements. AT&L’s guidance also authorized the Army to  continue using the approach it has put in place to obtain contractor- reported data on direct labor hours. To respond to  this mandate, we assessed (1) the approaches used to compile the fiscal  year 2009 inventories and how the approaches have changed, and (2) how  the inventories have been reviewed and used to inform workforce  decisions. We compared this  guidance with similar guidance and documents related to the fiscal year  2008 inventories, as well as information from our January 2010 report that  assessed DOD’s approach. Similarly, we  analyzed the extent to which the change in approach affected the  estimated number of contractor FTEs reported in the inventories at either  the aggregate level and for specific types of services by (1) applying the  formulas used by the Navy and Air Force to estimate the number of  contractor FTEs in fiscal year 2008 to the contracts included in their fiscal  year 2009 inventories; and (2) comparing that figure with the estimated  number of contractor FTEs using the formula prescribed by AT&L in the  May 2010 guidance. To conduct our work, we interviewed officials from the following offices:    Office of the Secretary of Defense:    Office of the Under Secretary of Defense for Acquisition,  Technology and Logistics (AT&L), Office of Defense Procurement  and Acquisition Policy (DPAP);    Office of the Under Secretary of Defense for Personnel and  Readiness, Requirements and Program and Budget Coordination  Directorate;    Office of Cost Assessment and Program Evaluation;   Department of the Army:    Office of the Assistant Secretary of the Army for Manpower and  Reserve Affairs, Office of Force Management, Manpower and  Resources;    Office of the Assistant Secretary of the Army for Acquisition,  Logistics, and Technology, Deputy Assistant Secretary of the Army  for Procurement;    Office of the Deputy Chief of Staff for Personnel;    Office of the Deputy Chief of Staff for Programs, Program Analysis    Office of the Assistant Secretary of the Army, Financial  Management and Comptroller, Deputy Assistant Secretary of the  Army for Budget, Formulation Division;    Office of the Deputy Chief of Staff for Operations, Army Force  Accounting and Documentation Division;  Installation Management Command, Resource Management  Directorate;    Training and Doctrine Command, Resource Management    Department of the Navy:    Office of the Assistant Secretary of the Navy for Research,  Development, and Acquisition, Deputy Assistant Secretary of the  Navy for Acquisition and Logistics Management;    Office of the Assistant Secretary of the Navy for Manpower and  Reserve Affairs, Office of Civilian Human Resources;    Office of the Assistant Secretary of the Navy, Financial Management  and Comptroller, Office of Budget;    Office of the Chief of Naval Operations, Deputy Chief of Naval  Operations for Manpower, Personnel, Education and Training,  Strategic Resourcing Branch;    Naval Air Systems Command, Analysis and Planning Office, Office  of the Deputy Assistant Commander for Contracts and Office of  Command Strategic Force, Planning and Management;    Department of the Air Force:    Secretary of the Air Force, Office of Acquisition Integration;    Secretary of the Air Force, Program Executive Office for Combat    Directorate of Manpower, Organization and Resources, Strategic    Assistant Secretary of the Air Force for Financial Management and  Comptroller, Deputy Assistant Secretary for Budget, Directorate of  Budget Operations;    Air Force Materiel Command, Strategic Plans and Programs  Business Integration Office, Office of Manpower and Personnel;    Office of Acquisition Policy and Compliance;    Business Operations Directorate, Operations Department;   Defense Information Systems Agency:    Procurement Directorate, Policy, Quality Assurance and Procedures    Manpower, Personnel, and Security Directorate, Manpower and  Personnel Systems Support Division;    U.S. Special Operations Command:    Directorate of Procurement, Procurement Management Division;    Assessment and Manpower Validation Branch.
Why GAO Did This Study

The Department of Defense (DOD) relies on contractors to perform myriad functions, which can offer benefits and flexibility for DOD. GAO's work has shown that reliance on contractors to support core missions, however, can place the government at risk of transferring government responsibilities to contractors. In April 2009, the Secretary of Defense announced his intent to reduce the department's reliance on contractors. In 2008, Congress required DOD to compile and review an annual inventory of the number of contractor employees working under service contracts and the functions and activities they performed. The fiscal year 2010 National Defense Authorization Act directed GAO to report annually on these inventories. GAO assessed (1) the approaches used to compile the fiscal year 2009 inventories and how the approaches have changed, and (2) how the inventories have been reviewed and used to inform workforce decisions. GAO reviewed guidance; compared the approaches used to develop the fiscal year 2008 and 2009 inventories; and interviewed acquisition and manpower officials from DOD, the military departments, and selected defense components.

What GAO Found

DOD implemented a more uniform approach to compile its fiscal year 2009 inventories to reduce inconsistencies that resulted from DOD components using different approaches in fiscal year 2008. To do so, in May 2010 the Under Secretary of Defense for Acquisition, Technology and Logistics (AT&L) issued guidance to the Navy, Air Force, and other components that specified the categories of services to be included in the inventories; instructed them to use the Federal Procurement Data System-Next Generation (FPDS-NG) as the basis for most of the inventory data requirements; and provided a formula to estimate the number of contractor full-time equivalent personnel working under those contracts. This guidance also authorized the Army to continue to use its existing process, which incorporates contractor-reported data, including direct labor hours, from its Contractor Manpower Reporting Application. The changes in DOD's approach, in particular how DOD reflected research and development services and the use of a new formula for estimating contractor personnel for the Air Force and Navy, as well as better reporting by the Army, affected the reported fiscal year 2009 inventory data. Collectively, these changes make comparing the fiscal year 2008 and 2009 inventory data problematic. DOD officials acknowledged several continuing limitations associated with the fiscal year 2009 inventories, including the inability of FPDS-NG to provide information for all of the required data elements, and concerns about AT&L's estimating approach. AT&L's May 2010 guidance indicated that it planned to move towards collecting manpower data from contractors and indicated AT&L would work with the Office of the Under Secretary of Defense for Personnel and Readiness and other organizations to issue preliminary guidance and a proposed plan of action by August 2010. However, DOD has not yet done so. The military departments differ both in their approaches to reviewing the activities performed by contractors and the extent to which they have used the inventories to inform workforce decisions. The Army has implemented a centralized approach to identify and assess the functions being performed by contractors and has used such assessments to inform workforce decisions, including those related to identifying functions being performed by contractors that could be converted to performance by DOD civilian personnel. In contrast, the Air Force and Navy have implemented decentralized approaches that rely on major commands to review their contracted activities and report the results back to their respective headquarters. The Air Force implemented its initial review but experienced challenges, including that it did not obtain adequate information, that will likely cause its approach to evolve in the future. The Navy issued guidance on completing reviews to its commands in September 2010, but the results of the reviews had not been reported as of November 2010. Additionally, Air Force and Navy officials said that to date they have made limited use of the inventories to date to help inform their workforce decisions.

What GAO Recommends

GAO recommends DOD develop and issue a plan of action to collect manpower data and, in the interim, improve its estimating approach. DOD concurred with the recommendations.