DOD Competitive Sourcing

Available data indicated that DOD realized savings from seven of the nine A-76 (competitive sourcing) cases reviewed, although less than the $290 million initially projected. Savings occurred whether governmental organizations or private contractors won the competition. Baseline cost estimates from which savings were estimated were usually calculated using an average cost of salary and benefits, rather than using actual costs for the positions actually filled at the time of the A-76 studies. Moreover, nonpersonnel costs, which were up to 15 percent of the total, were not included in the baseline. Study and implementation costs, which offset savings in the short term, were not considered, nor was the fact that changes in work scope after the A-76 competition can affect savings. Also, data limitations made it impractical to identify precise amounts of savings. Many of the cost estimates that are used in A-76 studies will continue to be estimated because DOD lacks a cost accounting system to provide actual costs. Further, reported savings from A-76 studies will continue to have some element of uncertainty and imprecision and will be difficult to track in the out years because workload requirements change, affecting program costs and the baseline from which savings are calculated.

GAO noted that: (1) available data indicated that DOD realized savings from 7 of the 9 Office of Management and Budget's Circular A-76 cases GAO reviewed, although less than the $290 million savings DOD components initially projected; (2) neither GAO nor DOD could precisely quantify the extent of savings from these 9 cases; (3) savings estimates were imprecise for a number of reasons; (4) baseline cost estimates from which savings were estimated were usually calculated using an average cost of salary and benefits for the number of authorized positions rather than using actual costs for the positions actually filled, which would have been more precise; (5) while most baseline cost estimates were based largely on personnel costs, up to 15 percent of the costs associated with the government's most efficient organizations' plans or the contractors' offers were not personnel costs; (6) because these types of costs were not included in the baseline, a comparison of the baseline to the government's most efficient organization or contractor costs may have resulted in understanding the cost savings; (7) on the other hand, savings estimates did not reflect the study and implementation costs, which offset savings in the short term; (8) data limitations made it impractical to identify precise amounts of savings; (9) DOD has begun efforts to revise its information management systems to better track the estimated and actual costs of activities studied, though not to revise previous savings estimates; (10) DOD is also emphasizing development of standardized baseline cost data for use in determining initial savings estimates; (11) however, many of the cost elements that are used in A-76 studies will continue to be estimated because DOD lacks a cost accounting system to provide actual costs; (12) reported savings from A-76 studies will continue to have some element of uncertainty and imprecision and will be difficult to track in the out years because workload requirements change, affecting program costs and baseline from which savings are calculated; and (13) given that DOD is reducing its operating budgets based on projected savings from A-76 studies, it is important that it have as much information as possible on savings being realized, including adjustments for up-front investment costs and other changes that may occur over time.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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