In 2008, Congress amended section 2330a to add a  requirement for the Secretary of Defense to submit an annual inventory of  the activities performed pursuant to contracts for services for or on behalf   The inventory is to include a  of DOD during the preceding fiscal year.number of specific data elements for each identified activity, including  the function and missions performed by the contractor;  the contracting organization, the component of DOD administering the  contract, and the organization whose requirements are being met  through contractor performance of the function;  the funding source for the contract by appropriation and operating  agency;  the fiscal year the activity first appeared on an inventory;  the number of full-time contractor employees (or its equivalent) paid  for performance of the activity; a determination of whether the contract pursuant to which the activity  is performed is a personal services contract; and a summary of the information required by section 2330a(a) of title 10  of the U.S. Code. In November 2011, DOD  submitted to Congress a plan that included instructions to the military  departments and DOD components to document contractor FTEs and  begin the collection of contractor manpower data. DOD officials noted that  developing a common data system to collect and house contractor  manpower data would be challenging given the different requirements of  the military departments and components. Consequently, DOD does not  expect to be able to fully collect contractor-reported direct labor  information until fiscal year 2016. As such,  DOD officials acknowledged that the factors that limited the utility,  accuracy, and completeness of using FPDS-NG remained. In our January 2011 report, we recommended that DOD develop a plan of  action, including anticipated time frames and necessary resources, to  facilitate the department’s intent of collecting manpower data and to  address other limitations in its current approach to meeting inventory  requirements. Further, while these efforts address the collection of contractor  manpower data, they do not specify how DOD will obtain the remaining  required data, such as identifying the requiring activity and all functions  and missions performed by the contractor, to meet the legislative  inventory requirements. Navy headquarters officials had no assurance that their  commands conducted the required reviews, and we found no evidence at  the Navy commands we contacted that the required reviews were  conducted. In contrast, we also found  that some contractors continued to perform inherently governmental  functions. For example, Army officials cited difficulty in hiring DOD  civilians caused by DOD’s decision to freeze civilian FTE levels at the  fiscal year 2010 level as hindering their ability to resolve instances  identified during the inventory review process. The Army and Air Force  identified 1,935 and 91 instances, respectively, in which contractors were  performing inherently governmental functions. The variation in the  number of cases reported by the Army and the Air Force may reflect  differences in their approaches to conducting the inventory reviews. The guidance, however, does not clearly establish lines of accountability  and responsibility within the military departments and defense  components for conducting the inventory reviews and addressing  instances where contractors are identified as performing inherently  governmental functions. The absence of guidance, at all levels, providing clear lines of  responsibility for conducting, documenting, and addressing issues  identified during the fiscal year 2009 inventory review process contributed  to instances in which contractors continued to perform functions identified  as being inherently governmental in 8 of the 12 Army and Air Force cases  we reviewed. DOD’s December 2011  guidance will require the military departments and defense components to  certify that they have conducted the required reviews, but the guidance  does not clearly establish lines of accountability and responsibility within  the military departments and defense components for doing so. Recommendations for Executive Action

To address these issues we are making the following three  recommendations:  To improve the execution and utility of the inventory review process, we  recommend that the Secretary of Defense ensure that the military  departments and defense components issue guidance to their commands  that provides clear lines of authority, responsibility, and accountability for  conducting an inventory review and resolving instances where functions  being performed by contractors are identified as inherently governmental  functions. DOD concurred with our recommendations to address instances we  reviewed in which the Army and Air Force identified that contractors were  still performing functions deemed inherently governmental. To  satisfy the mandate for 2011, we assessed (1) the progress the  Department of Defense (DOD) has made in addressing limitations in its  approach when compiling the fiscal year 2010 inventories on contracted  services and in developing a strategy to obtain manpower data and   (2) the extent to which the military departments addressed issues with  contractors performing inherently governmental functions identified during  reviews of their fiscal year 2009 inventories. For the fiscal year 2010 inventory, AT&L  continued to rely on data from the Federal Procurement Data System- Next Generation (FPDS-NG) for most defense components other than the  Army and the TRICARE Management Activity.
Why GAO Did This Study

DOD relies on contractors to perform many functions, which can offer benefits for DOD. GAOs work has shown that reliance on contractors to support core missions, however, can place DOD at risk of contractors performing inherently governmental functions.
(2) the extent to which the military departments addressed instances of contractors performing functions identified as inherently governmental during reviews of their fiscal year 2009 inventories. GAO reviewed DOD guidance, interviewed acquisition and manpower officials, and assessed 12 instances from a nongeneralizable sample in which the Air Force and Army determined that contractors had performed inherently governmental functions

What GAO Found

The Department of Defense (DOD) made a number of changes to improve the utility of the fiscal year 2010 inventory, such as centrally preparing contract data to provide greater consistency among DOD components and increasing the level of detail on the services provided. DOD, however, continued to rely primarily on the Federal Procurement Data System-Next Generation (FPDS-NG) for the inventory for most defense components other than the Army. As such, DOD acknowledged a number of factors that limited the utility, accuracy, and completeness of the inventory data. For example, FPDS-NG does not identify more than one type of service purchased for each contract action, provide the number of contractor full-time equivalent personnel, or identify the requiring activity. As before, the Army used its Contractor Manpower Reporting Application to compile its fiscal year 2010 inventory. This system collects data reported by contractors on services performed at the contract line item level, including information on labor hours and the function and mission performed. DOD officials noted that the Armys current process complies with legislative requirements. In January 2011, GAO recommended that DOD develop a plan with time frames and the necessary resources to facilitate its efforts to collect contractor manpower data and address other limitations in its approach to meeting inventory requirements. DOD concurred with these recommendations. In November 2011, DOD submitted to Congress a plan to collect contractor manpower data. DOD officials noted that developing a common data system to collect and house these data would be challenging given the different requirements from the military departments and components. Consequently, DOD does not expect to fully collect contractor manpower data until fiscal year 2016. DODs plan, however, does not establish milestones or specify how it will meet the legislative requirement to identify the requiring activity and the function and missions performed by the contractor.
Military departments required reviews of their fiscal year 2009 inventories of contracted services were incomplete. Navy headquarters officials had no assurance that their commands conducted the required reviews, and GAO found no evidence at the commands it contacted that the required reviews were conducted. Army and Air Force inventory reviews identified 1,935 and 91 instances, respectively, in which contractors were performing inherently governmental functions, though this variation may reflect differences in the departments approaches to conducting the reviews. In 8 of the 12 Army and Air Force cases GAO reviewed, contractors continued to perform functions the military departments identified as inherently governmental. The absence of guidance that provided for clear lines of responsibility for conducting, documenting, and addressing the results of the reviews contributed to these outcomes. Further, Army officials cited difficulty in hiring DOD civilians caused by DODs decision to freeze civilian full-time equivalents at fiscal year 2010 levels. DOD issued guidance in December 2011 that will require the military departments and components to certify that they have conducted the required reviews. The guidance, however, does not clearly establish lines of accountability and responsibility within the military departments and defense components for conducting the inventory reviews and addressing instances where contractors are identified as performing inherently governmental functions.

What GAO Recommends

GAO recommends that the military departments and components develop guidance that provides for clear lines of authority, responsibility, and accountability for conducting an inventory review and that the Army and Air Force resolve known instances of contractors performing inherently governmental functions. DOD largely agreed with GAOs recommendations.