Defense Acquisitions
Observations on the Department of Defense Service Contract Inventories for Fiscal Year 2008 Gao ID: GAO-10-350R January 29, 2010The Department of Defense (DOD) is the federal government's largest purchaser of contractor-provided services and relies on contractors to support its varied missions. DOD's contractors provide a range of services, such as consulting and administrative support, information technology services, and weapon system and base operations support. However, DOD contract management has been on our high-risk list since 1992, and our recent work continues to identify weaknesses in DOD's management and oversight of services contracts. In particular, we have reported on the need for reliable data on how service acquisition dollars are spent to make informed contract management decisions and achieve positive acquisition outcomes. Congress has enacted legislation in recent years to increase the availability of information on services acquisitions to improve DOD's ability to manage these purchases. As part of those efforts, the National Defense Authorization Act for Fiscal Year 2008 amended 10 U.S.C. 2330a to require DOD to submit an annual inventory of the activities performed pursuant to contracts for services for or on behalf of DOD during the preceding fiscal year. These inventories are to contain a number of different elements for the service contracts listed, including information on the functions and missions performed by the contractor, the funding source for the contract, and the number of contractor full-time equivalents (FTE) working under the contract. Once compiled, the inventories are to be reviewed by senior DOD officials and used to inform a variety of acquisition and workforce decisions.
In July 2009, DOD transmitted a report to Congress containing the inventories for fiscal year 2008, in which the Departments of the Army, Navy, and Air Force identified $96 billion spent to acquire contractor services and 596,219 contractor FTEs providing services. In compiling their respective inventories, the military departments used different methodologies, relying on a mixture of existing data systems, contractor-entered data, manual compilation of some data elements, or estimates. Key differences between the departments' methodologies include how they identified service contracts, the categories of services included in each inventory, and how they determined the number of contractor FTEs. Furthermore, the data reported in each of the inventories were not complete. DOD has acknowledged limitations associated with the methodologies used and currently has an effort under way to develop a new, more consistent approach for compiling future inventories.
GAO-10-350R, Defense Acquisitions: Observations on the Department of Defense Service Contract Inventories for Fiscal Year 2008
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GAO-10-350R:
United States Government Accountability Office:
Washington, DC 20548:
January 29, 2010:
Congressional Committees:
Subject: Defense Acquisitions: Observations on the Department of
Defense Service Contract Inventories for Fiscal Year 2008:
The Department of Defense (DOD) is the federal government's largest
purchaser of contractor-provided services and relies on contractors to
support its varied missions. DOD's contractors provide a range of
services, such as consulting and administrative support, information
technology services, and weapon system and base operations support.
However, DOD contract management has been on our high-risk list since
1992,[Footnote 1] and our recent work continues to identify weaknesses
in DOD's management and oversight of services contracts. In
particular, we have reported on the need for reliable data on how
service acquisition dollars are spent to make informed contract
management decisions and achieve positive acquisition outcomes.
[Footnote 2] Congress has enacted legislation in recent years to
increase the availability of information on services acquisitions to
improve DOD's ability to manage these purchases. As part of those
efforts, the National Defense Authorization Act for Fiscal Year 2008
amended 10 U.S.C. § 2330a to require DOD to submit an annual inventory
of the activities performed pursuant to contracts for services for or
on behalf of DOD during the preceding fiscal year.[Footnote 3] These
inventories are to contain a number of different elements for the
service contracts listed, including information on the functions and
missions performed by the contractor, the funding source for the
contract, and the number of contractor full-time equivalents (FTE)
working under the contract. Once compiled, the inventories are to be
reviewed by senior DOD officials and used to inform a variety of
acquisition and workforce decisions.
House Armed Services Committee Report 111-116, which accompanied the
National Defense Authorization Act for Fiscal Year 2010, directed us
to assess the methodology used by the Departments of the Army, Navy,
[Footnote 4] and Air Force to compile the service contract inventories
for fiscal year 2008. In December 2009, we provided your staff with a
briefing on the results of our assessment of the methodologies used.
This letter summarizes that briefing, which is contained in enclosure
I.
To assess the methodologies used by each of the military departments
in compiling their fiscal year 2008 inventories, we obtained and
reviewed each of the inventories and descriptions of the methodologies
used. In addition, we interviewed officials from the Office of
Acquisition, Technology and Logistics, Defense Procurement and
Acquisition Policy, and the Army, Navy, and Air Force to identify the
data sources used and discuss the compilation methodologies. We also
analyzed data from the Federal Procurement Data System-Next Generation
(FPDS-NG)[Footnote 5] on service contracts active in fiscal year 2008
for each military department to assess the methodologies used and the
completeness of the data contained in the inventories. We have
previously reported on issues with the reliability of data contained
in FPDS-NG; however, for the purposes of this review, we used FPDS-NG
data to identify potential inconsistencies in the military
departments' methodologies and their implementation, rather than to
assess the completeness or accuracy of FPDS-NG data. Additional
information regarding our scope and methodology appears in appendix I
of the briefing.
We conducted this performance audit from October 2009 to November 2009
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Summary:
In July 2009, DOD transmitted a report to Congress containing the
inventories for fiscal year 2008, in which the Departments of the
Army, Navy, and Air Force identified $96 billion spent to acquire
contractor services and 596,219 contractor FTEs providing services
[Footnote 6]. In compiling their respective inventories, the military
departments used different methodologies, relying on a mixture of
existing data systems, contractor-entered data, manual compilation of
some data elements, or estimates. Key differences between the
departments' methodologies include how they identified service
contracts, the categories of services included in each inventory, and
how they determined the number of contractor FTEs. Furthermore, the
data reported in each of the inventories were not complete. DOD has
acknowledged limitations associated with the methodologies used and
currently has an effort under way to develop a new, more consistent
approach for compiling future inventories.
Methodologies Used by the Army, Navy, and Air Force Differed in Key
Ways:
One key difference in the methodologies relates to how the Army, Navy,
and Air Force identified contracts for services. Specifically, the
Army's methodology included services purchased under contracts for
both goods and services, while the Navy and Air Force methodologies
did not. This occurred because the Army inventory was based in part on
information entered by contractors into its Contractor Manpower
Reporting Application (CMRA) system, which was set up to obtain better
visibility of the contractor service workforce. According to Army
policy, Army contracts must contain a clause requiring contractors to
enter data, including the invoiced amount and the direct labor hours
for services purchased, regardless of whether the contract is
primarily for services or goods. In contrast, the Navy and Air Force
identified service contracts based on whether the contracts were coded
for services in FPDS-NG. However, since services can also be purchased
under contracts coded for goods in FPDS-NG, services purchased under
such contracts were not included in the Navy and Air Force
inventories.[Footnote 7]
Another key difference among the methodologies is that each military
department defined what constituted a service differently and excluded
different categories of services and contract actions from each
inventory based on their interpretations of the requirements. In some
instances, the effect of these exclusions was significant. Most
notably, the Air Force excluded contracts categorized as providing
research and development services whereas the Navy and Army
inventories contain such contracts. The effect of this exclusion
reduced the obligations reported in the Air Force's inventory by about
$13 billion. Additionally, the Navy excluded contract actions below
$100,000, which totaled $1.8 billion, and contract actions with de-
obligations, which totaled $1.2 billion.
The military departments also differed in how they determined the
number of contractor FTEs performing services. The Army used data
entered into CMRA by contractors regarding the number of direct labor
hours worked for contract services during fiscal year 2008, which were
then converted to FTEs.[Footnote 8] Army officials explained that
contractor data should but may not always be validated by government
personnel overseeing the contractors. However, Army officials
indicated that because the reported data are consistent with other
data obtained through internal reviews, they are confident in the
reported data's accuracy. Army officials also stated that on a limited
basis, when the alternative would have been receiving no labor hour
data, contractors have been given permission to enter estimates in
lieu of actual labor hours. In contrast, the Navy and Air Force both
used the amount obligated for a particular type of service divided by
the estimated cost of a contractor employee to perform that type of
service to estimate the number of contractor FTEs. However, the Navy
and Air Force differed in how they identified the cost of a contractor
performing each type of service. The Navy reviewed a sample of 510
Navy contracts and based on this sample calculated the average hourly
labor rate for each type of service. The Air Force, for the majority
of its contracts, adjusted the average annual cost of a contractor FTE
identified in DOD's Performance of Commercial Activities Report
[Footnote 9] and used this adjusted number as its estimated contractor
cost. For example, using its methodology, the Navy determined the cost
of a contractor providing professional services to be $179,252 per
year, whereas the Air Force determined the cost for the same type of
service to be $160,000 per year. When using an estimate to calculate
FTEs, the results can be highly sensitive to the numbers that are used
for the cost of a contractor FTE. For instance, when the Air Force
adjusted the factor contained in the DOD commercial activities report,
its FTE calculation was reduced by almost half.
Inventory Data Were Not Complete:
The data reported in each of the military departments' inventories are
not complete. For example, the military departments noted challenges
in their ability to obtain and report data on services purchased
through interagency contracting. Using FPDS-NG, we identified $1.4
billion in obligations where the military departments provided funding
to non-DOD agencies to contract for services on DOD's behalf, which
indicates a large scope of service contracting activities not fully
reflected in the inventories. In addition, for those contracts that
were included in the inventories, the Army, Navy, and Air Force were
missing some data they were required to report. For example, the Navy
inadvertently omitted $4 billion in service contracting activity
because of an error made in manually compiling its inventory.
Additionally, all three military departments did not identify the
funding source for a significant portion of the contracts in their
inventories--in the case of the Air Force, the funding source was
provided for less than 1 percent of the contracts. In the case of the
Army, our analysis showed that for 88 percent of the contracts in the
Army's inventory, data were not provided on the number of contractor
FTEs or the function performed by the contractor. Army officials told
us that this occurred because contractors did not enter data into the
CMRA system for all contracts that the Army listed in its inventory.
We found that the Army had more complete data for a small subset of
contracts for which contractors entered labor hour data into CMRA. For
this subset, the number of contractor FTEs and the function performed
by the contractor were provided for close to 100 percent of these
contracts.[Footnote 10] The Navy and Air Force were able to provide
more complete data on the number of contractor FTEs and the function
performed for almost all contracts listed in their inventories because
each populated the contractor FTE field with estimates using a formula
and took the function performed by the contractor from existing data
systems.
Plans for Fiscal Year 2009 Inventories and Future GAO Reviews:
DOD has acknowledged the presence of inconsistencies across the
military departments' fiscal year 2008 inventories. The Office of
Acquisition, Technology, and Logistics, Defense Procurement and
Acquisition Policy is developing a new, more consistent methodology
for compiling the fiscal year 2009 inventories to address these
inconsistencies, which includes consideration of options for
standardizing the calculation of contractor FTEs. In addition, section
803 of the National Defense Authorization Act for Fiscal Year 2010
directs GAO to continue to report on DOD's inventories in 2010, 2011,
and 2012.[Footnote 11]
Concluding Observations:
The service contract inventories are to be used to inform a variety of
acquisition and workforce decisions within DOD. The limitations that
both we and DOD have identified in the methodologies used to compile
the inventories for fiscal year 2008 indicate a need to exercise
caution when using them as a basis for such decisions. First, the
differences inherent in each of the methodologies, in particular the
differences in the categories of services excluded and in the way in
which the number of contractor FTEs was identified, make comparisons
across the military departments difficult. Furthermore, all three
methodologies had limitations in the extent to which each captured the
universe of service contracting activity, and for those contracts that
were included, the extent to which complete data were reported. DOD
efforts to develop a new, more consistent approach for compiling the
inventories may address such limitations and better meet the varying
information needs of those responsible for making acquisition and
workforce decisions.
Agency Comments:
We provided a draft of this report to DOD for its review and comment.
DOD provided oral comments in which Mr. Shay Assad, Director, Defense
Procurement and Acquisition Policy, stated that DOD concurs with the
GAO's concluding observations and will continue working with the
military departments and other defense agencies to establish a unified
methodology for completion of all data required by 10 U.S.C. § 2330a.
We are sending a copy of this report to the Secretary of Defense. In
addition, this document will be available at no charge on GAO's Web
site at [hyperlink, http://www.gao.gov].
If you or your staff have any questions, please contact us at (202)
512-4841 or huttonj@gao.gov or (202) 512-8365 or solisw@gao.gov.
Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this letter. GAO staff who
made contributions to this correspondence are listed in enclosure II.
Signed by:
John P. Hutton:
Director, Acquisition and Sourcing Management:
Signed by:
William Solis:
Director, Defense Capabilities and Management:
List of Committees:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
The Honorable Daniel Inouye:
Chairman:
The Honorable Thad Cochran:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Ike Skelton:
Chairman:
The Honorable Howard P. McKeon:
Ranking Member:
Committee on Armed Services:
House of Representatives:
The Honorable John Murtha:
Chairman:
The Honorable C.W. Bill Young:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
[End of section]
Enclosure I: Briefing Slides:
Observations on the Department of Defense Service Contract Inventories
for Fiscal Year 2008:
Briefing for Congressional Staff:
December 10, 2009:
Contents:
* Introduction;
* Objective, Scope, and Methodology;
* Results in Brief;
* Background;
* Methodologies Used by Military Departments Differed;
* Inventory Data Are Not Complete;
* Concluding Observations;
* Plans for Fiscal Year 2009 Inventories and Future GAO Reviews;
* Agency Views;
* Appendix I: Scope and Methodology;
* Points of Contact.
Introduction: DOD‘s Use of Service Contracts and Requirement for
Inventories:
The Department of Defense (DOD) reported obligating roughly $200
billion on service contracts in fiscal year 2008.
Contractors provided a range of services for DOD, such as:
* food services;
* management support;
* analytical support for budget formulation;
* weapon system repair; and;
* security guard services.
10 USC § 2330a requires DOD to collect data on the purchase of
services, compile an inventory of those services, and submit the
inventory to Congress annually. The inventory is to be made available
to the public. Further, within 90 days of submission of the annual
inventory to Congress, DOD must review the inventory to ensure that it
complies with the requirements of 10 USC 2330a (e).
Objective, Scope, and Methodology:
The House Armed Services Committee Report 111-166 accompanying H.R.
2647, the National Defense Authorization Act for Fiscal Year 2010,
directed GAO to assess the methodology used by the Departments of the
Air Force, Navy,[Footnote 12] and Army to compile the inventories for
fiscal year 2008.
To conduct our work we:
* obtained and reviewed the military departments' inventories for
fiscal year 2008 and descriptions of the methodologies used to compile
them;
* interviewed officials to identify the data sources used to compile
the inventories and discuss the compilation methodologies; and;
* compared inventory data to data extracted from the Federal
Procurement Data System-Next Generation (FPDS-NG) for fiscal year 2008
to assess the completeness of the data contained in the inventories.
See Appendix I for our complete scope and methodology.
Results in Brief:
The military departments each used different approaches and data
sources to compile their service contract inventories for fiscal year
2008, excluded different categories of data, and calculated the number
of contractor full time equivalents differently. Further, the data
reported in each of the inventories are not complete.
The military departments have acknowledged some of the limitations
associated with their methodologies. Furthermore, there is a DOD-wide
effort underway to develop a new, more consistent approach for
compiling future inventories.
Background: Statutory Requirements:
10 USC § 2330a (a) requires the Secretary of Defense to establish a
data collection system to provide management information about the
purchase of services. This system is to capture data on the following
elements:
* the service purchased;
* total dollar amount of the purchase;
* form of contracting;
* whether the purchase was made through a performance-based or
nonperformance based contracting arrangement;
* if the purchase was made by a non-DOD agency, the name of that agency;
* the extent of competition provided in making the purchase, and
whether there was more than one offer;
* whether the purchase was made from a small business, small
disadvantaged businesses, or women-owned small businesses.
10 USC 2330a (c) also requires the Secretary of Defense to submit to
Congress, not later than the third quarter of each fiscal year, an
annual inventory of the activities performed during the preceding
fiscal year pursuant to contracts for services for or on behalf of
DOD. The inventory shall include the following data elements for each
activity:
* functions and missions performed by the contractor;
* contracting organization, administering component, and requiring
organization;
* funding source for the contract by appropriation and operating
agency;
* fiscal year the activity was first reported on an inventory;
* number of full-time contractor employees (or equivalent);
* a determination of whether the contract is for personal services;
and;
* a summary of the data already required in 10 USC 2330a (b).
10 USC § 2330a (e) also requires that the secretary of the military
department or head of the defense agency shall review contracts on the
list for which they are responsible to:
* ensure that personal services contracts are being entered into and
performed according to applicable statutory and regulatory
requirements;
* ensure that the activities on the list do not include any inherently
governmental functions;
* ensure that to the maximum extent practicable that activities on the
list do not include any functions closely associated with inherently
governmental functions; and;
* identify activities that should be considered for conversion to:
- performance by DOD civilian employees pursuant to 10 USC 2463, or,
- to an acquisition approach more advantageous to DOD.
Background: Schedule for Submitting Fiscal Year 2008 Inventories:
In May 2008, DOD's Office of Acquisition, Technology & Logistics
(AT&L) issued a memorandum that established a phased approach for
implementing the inventory requirement.
Fiscal Year 2008:
Army will deliver fully compliant inventory list.
Fiscal Year 2009:
Army will deliver fully compliant inventory list, and the Air Force
and Navy will deliver prototype lists.
Fiscal Year 2010:
Army, Air Force, and Navy will deliver fully compliant inventory.
Defense agencies will deliver prototype inventories.
Fiscal Year 2011:
All DOD components will deliver annual inventories in full compliance
with 10 USC § 2330a.
In May 2009, AT&L issued a revised implementation schedule.
June 30, 2009:
Military departments submit inventories for fiscal year 2008.
August 28, 2009:
Defense agencies submit inventories.
June 30, 2010:
All DOD components submit inventories for DOD-wide compliance with 10
USC § 2330a.
Background: Inventories for Fiscal Year 2008 Service Contracts:
The fiscal year 2008 military departments' inventories identified $96
billion in service contracting activity and 596,219 contractor full-
time equivalents (FTEs).[Footnote 13]
Table 1: Dollars contracted for services in fiscal year 2008
inventories:
Military Department: Navy;
Dollars Contracted for Services in Fiscal Year 2008[A]: $41,135,363,819;
Military Department: Air Force;
Dollars Contracted for Services in Fiscal Year 2008[A]: $20,964,572,022;
Military Department: Army;
Dollars Contracted for Services in Fiscal Year 2008[A]: $34,052,055,961.
Total:
Dollars Contracted for Services in Fiscal Year 2008[A]: $96,151,991,802.
Source: GAO analysis of military department fiscal year 2008
inventories.
[End of table]
Figure 1: Total FTEs in fiscal year 2008 inventories:
[Refer to PDF for image: pie-chart]
Air Force: 141,327;
Army: 213,133;
Navy: 241,759.
Source: GAO analysis of military department fiscal year 2000
inventories and report to Congress.
[End of figure]
Methodologies Used by the Military Departments Differed:
Key differences exist in how the military departments compiled their
service contract inventories for fiscal year 2008.
* The military departments' methodologies relied on a mixture of
existing data systems, manual compilation of some data elements, and
estimates.
* Each military department excluded different categories of contract
services and actions.
* Each military department chose a different technique for calculating
the number of contractor FTEs.
Methodologies Used: Overview of Army:
To compile its inventory, the Army used the Army Contract Business
Intelligence System (ACBIS) to identify service contracts and populate
the Contractor Manpower Reporting Application (CMRA). Contractors then
entered additional data, including data on labor hours, into CMRA. The
Army then used ACBIS to populate any remaining data
elements.
ACBIS:
CMRA: (Contractors enter data):
ACBIS:
Inventory Data Set.
Methodologies Used: Overview of Navy:
To compile its inventory, the Navy had individual contracting offices
query FPDS-NG and contracting writing systems using the product
service code (PSC) to identify services contracts.
FPDS-NG:
Contract Writing Systems:
Inventory Data Set.
Contractor FTEs were calculated using average hourly labor rates
derived from a sample of Navy contracts representing 17 PSC categories.
Methodologies Used: Overview of Air Force:
To compile its inventory, the Air Force queried FPDS-NG using the PSC
to identify service contracts. The Air Force then used multiple
methodologies depending on the nature of the contract action to
identify the number of contractor FTEs.
FPDS-NG:
Inventory Data Set:
* Actions associated with contracts for advisory and assistance
services;
- Contractor FTEs were determined by the office that managed the
contract.
* Actions associated with all other contracts;
- Contractor FTEs were determined by the office that managed the
contract; or:
- were calculated using a formula based on an average revenue per
employee factor for each PSC.
Methodologies Used: Some Services and Contract Actions Excluded:
Because the Air Force and Navy identified contracts included in their
inventories based on whether they were coded as a service in FPDS-NG,
their inventories do not include contracts that may have been coded
under a PSC for goods but that also have services being performed.
* This occurs because those entering data into FPDS-NG are to report
only one PSC for each action and are to use the PSC that describes the
predominant product or service procured.
According to Army guidance on reporting in CMRA, contractors are
required to report data on services purchased under a contract used to
purchase both goods and services, even if the product service code
associated with the contract is for goods. We identified contracts
included in the Army's inventory that are coded under a PSC for goods
in FPDSNG.
Methodologies Used: Some Services and Contract Actions Excluded:
Each military department excluded some categories of services and/or
contract actions from their inventories.
Table 2: Activities excluded from fiscal year 2008 inventories:
Air Force:
Category of service:
* Research and development;
* Construction;
* Maintenance of real property;
* Lease or rental of equipment, and facilities;
* Additional services[A].
Navy:
Category of service:
* Construction;
* Lease or rental of equipment, and facilities.
Contract actions:
* Actions below $100,000[B];
* Deobligations.
Army:
Category of service:
* Construction;
* Utility services;
* Foreign military sales.
Source: GAO analysis of military department fiscal year 2008
inventories.
[A] The Air Force chose to exclude 43 additional PSCs that the Air
Force felt were not likely to have an FTE closely associated with the
service provided, such as motor passenger services.
[B] A Navy official explained that contract actions below $100,000
were excluded based on the Navy's interpretation of 10 U.S.C. 2330a.
[End of table]
Methodologies Used: Example of the Effect of Navy Exclusions:
Based on its interpretation of 10 U.S.C. 2330a, a Navy official stated
that the Navy did not include actions below $100,000. Using FPDSNG, we
identified the total dollar value of these actions as about $1.8
billion.
The Navy also did not include contract actions with de-obligations in
its inventory. Using FPDS-NG, we identified the total dollar value of
de-obligations as about $1.2 billion.[Footnote 13]
Methodologies Used: Example of the Effect of Air Force Exclusions:
While the Army and Navy inventories included product service codes for
research and development (PSC A) and maintenance, repair or alteration
of real property (PSC Z), the Air Force inventory did not. If PSC A
and PSC Z were included in the Air Force inventory, both total
obligations and the FTE estimate would increase significantly.
Figure 2: Potential change in Air Force inventory obligations for
fiscal year 2008:
[Refer to PDF for image: vertical bar graph]
Without PSC A&Z: $20 billion;
With PSC A&Z: $35 billion;
74% increase.
Source: GAO analysis of Air Force data.
[End of figure]
Figure 3: Potential change in Air Force inventory FTE estimate for
fiscal year 2008:
[Refer to PDF for image: vertical bar graph]
Without PSC A&Z: 140,000 FTEs;
With PSC A&Z: 210,000 FTEs;
50% increase.
Source: GAO analysis of Air Force data.
[End of figure]
Methodologies Used: Army's Calculation of Contractor FTEs:
Contractors with a reporting requirement in their performance work
statement are to enter data in CMRA for direct labor hours, which is
the total number of hours performed by the contractor on the contract
in the prior fiscal year.
* According to Army officials, contractors can enter labor hour
estimates on a limited exception basis because in some cases, the
alternative would have been receiving no labor hour data. They stated
these estimates are regarded as reasonable since CMRA has automated
checks of whether the labor hours are consistent with other data being
reported.
* Army officials said that while contracting officer's representatives
are to validate the labor hours entered by contractors in CMRA, this
validation may not always occur. However, officials expressed
confidence in the reported FTEs' accuracy because the numbers are
consistent with data obtained through internal reviews.
To calculate the number of contractor FTEs, the Army used the
following formula based on the data from CMRA:
Number of FTEs equals:
Direct labor hours (Taken from CMRA), divided by:
2087 annual labor hours.
Methodologies Used: Navy's Calculation of Contractor FTEs:
To calculate contractor FTE's, the Navy used the following process:
* Grouped PSCs into 17 categories based on similarities in
descriptions and functions.
* Selected a sample of Navy contracts for each category of services.
* Reviewed 510 contracts to identify the average hourly labor rate on
each contract, then calculated the average hourly labor rate for each
of the 17 categories. For example, using this method the Navy
calculated that a contractor working under a contract coded as program
management services earned an average labor rate of $85.75 per hour.
Once the Navy identified the average hourly labor rate for each
service category, the Navy used the following formula to calculate
FTEs:
Number of FTEs equals:
Dollars obligated for each contract line item (Taken from contract
writing systems), divided by:
Average hourly labor rate times 2087.
The average hourly labor rate was calculated based on sample of Navy
contracts and then multiplied by 2087 annual labor hours to convert to
an annual dollar amount.
Methodologies Used: Air Force's Calculation of Contractor FTEs:
For the 1,154 contract actions in the Air Force inventory that the Air
Force identified as being associated with contracts for advisory and
assistance services, the Air Force used FTE numbers that were
generated through their annual budget documentation process. To do so,
the offices that manage each contract are to provide their best
estimate of the number of contractor FTEs based on the techniques
identified in Air Force Instruction 38-201, Determining Manpower
Requirements.
* These estimating methods were used for actions associated with
advisory and assistance services contracts regardless of the amount
obligated.
For the non-advisory and assistance service contract actions in the
Air Force inventory that were $10 million and above, the responsible
contracting offices were asked to provide their best estimate of the
number of FTEs and could do so based on any logical approach they
chose, including counting the number of contractor badges or common
access cards issued under the contract, asking the contractor how many
people were working under the contract, or asking the quality
assurance personnel to provide an estimate. Using these approaches,
the responsible contracting offices provided either a head count or an
FTE estimate for 86 of these actions.
* For the remaining 196 actions that were $10 million and above, the
responsible contracting office did not provide an FTE estimate. As a
result, the Air Force applied its formula for calculating FTEs to
these as well as the 44,917 actions below $10 million.
To estimate contractor FTEs in its inventory, the Air Force used the
following formula:
Number of FTEs equals:
Dollars obligated for the action (Taken from FPDS-NG), divided by:
Average annual cost of FTE for the PSC associated with the action
(Based on an Air Force adjustment to the average FTE costs in the DOD
Performance of Commercial Activities Report.[Footnote 15])
The Air Force did not agree with the methodology used to calculate the
average annual cost of an FTE in the DOD Performance of Commercial
Activities Report, citing concerns that the costs identified were too
low.
Based on a survey of its professional services contracts, the Air
Force proportionally increased the average annual cost of an FTE for
all service contract categories.
Using the adjusted average FTE cost, the Air Force estimated it had
122,764 contractor FTEs for those actions where it used its formula.
Using the averages from DOD's commercial activities report, the
estimate would have been 238,107 FTEs for these same actions.
Methodologies Used: Comparison of FTE Calculations:
Using two Army task orders as examples, we identified the dollars
obligated under each task order in FPDS-NG for fiscal year 2008 and
then applied both the Navy and Air Force FTE formulas and their
respective labor rates to the same task order to compare the resulting
number of FTEs. Because the Army methodology for determining FTEs
relies on contractor reported data, we could not apply that
methodology to Navy or Air Force contracts or orders.
As illustrated on the following slide, applying the different
methodologies, specifically the labor rates, to the same task order
results in a different number of contractor FTEs.
Figure 4: Comparison of FTE results for the Army, Navy, and Air Force:
Refer to PDF for image: two horizontal bar graphs]
Example of Task Order for Professional, Administrative, and Management
Support Services:
Air Force: 1,603;
Navy: 2,937;
Army: 3,218.
Example of Task Order for Architecture and Engineering Services:
Air Force: 23;
Navy: 25;
Army: 22.
Source. Army fiscal year 2008 inventory and GAO analysis of Air For.
and Navy methodologies.
[End of figure]
Inventory Data Are Not Complete:
The military departments' inventories are not complete.
* Each military department reported that interagency contracts for
which DOD provided funds to other agencies to purchase services on its
behalf were not fully reflected in their inventories.
* The Army inventory was missing data for some required data elements
because contractors did not enter data for a significant number of
contracts.
* The Navy inventory inadvertently omitted almost $4 billion in
service contracting activity.
* The Air Force inventory did not identify the funding source for a
large number of contracts and attributed this to resource constraints.
The Air Force also excluded a small number of contractor FTEs from the
total.
Completeness: Incomplete Reporting of Interagency Contracting
Activities:
In submitting their inventories, the Army and Air Force noted
challenges in their ability to obtain and report data on interagency
service contracts. As a result, the Army stated that its inventory
contained limited data on services purchased through another agency,
while the Air Force stated that its inventory did not include
contracts where it was the funding agency but not the contracting
agency. Similarly, Navy officials informed us that their inventory did
not include instances in which another agency procured services on the
Navy's behalf.
All three military departments indicated that they are looking at
options on how to improve their collection of data on services
obtained through interagency contracts.
Using FPDS-NG, we identified obligations totaling almost $1.4 billion
in service contracting activities done on behalf of the Army, Navy,
and Air Force by non-DOD agencies. While the interagency contracting
data in FPDS-NG may not be complete, these activities represent a
large scope of service contracting activity not fully reflected in the
inventories.[Footnote 16]
Figure 5: Fiscal year 2008 obligations on non-DOD interagency service
contracts:
[Refer to PDF for image: vertical bar graph]
Army: $513.7 million;
Navy: $222.2 million;
Air Force: $650.9 million.
Source: GAO analysis of FPDS-NG data.
Completeness: Army Missing Data:
When we analyzed the Army's inventory, we identified a significant
number of contracts for which data were missing, as shown in table 3.
For example, for 87.9 percent of the contracts in the inventory, no
data were provided on the function performed by the contractor.
Army officials told us that the missing data in its inventory are
attributable to contractors not entering data in CMRA for all
contracts. However, they noted that when contractors entered labor
hour data into CMRA, the remaining data elements for those contracts
were more likely to be populated. For the subset of contracts with
labor hour data, we found considerably fewer instances where the data
were missing.
Table 3: Percentage of contracts with missing data for selected data
elements:
All contracts in inventory:
Number of contracts: 47,191;
Invoiced dollar amount: 83.6%;
Contractor FTEs: 87.9%;
Funding source: 46.7%;
Function performed: 87.9%.
Subset of contracts in inventory with direct labor hour data:
Number of contracts: 5,735;
Invoiced dollar amount: 0.1%;
Contractor FTEs: 0.0%;
Funding source: 38.9%[A];
Function performed: 0.0%.
Source: GAO analysis of the Army fiscal year 2008 inventories.
[A] According to the Army, the contracts without funding source data
represent 15.6 percent of the invoiced amounts for which the funding
source was reported.
[End of table]
Completeness: Navy Missing Data:
When we replicated the Navy's methodology for identifying service
contracts in FPDS-NG, we identified 1,837 contracts with obligations
of almost $4 billion that were not included in the Navy's inventory. A
Navy official noted that these contracts were not included due to an
inadvertent error in manually compiling the full data set and that the
Navy will take steps to ensure this does not occur in future
inventories.
Additionally, in submitting its inventory, the Navy noted that there
were missing data for the contracts included in the inventory due to
information not being available from the data sources used.
Table 4: Percentage of Navy contracts missing data for selected data
elements:
Obligations: 0.0%;
Contractor FTEs: 1.6%;
Funding source: 44.6%[A];
Function performed: 12.8%.
Source: GAO analysis of the Navy fiscal year 2008 inventory.
[A] The records without funding source data represent 36.4 percent of
the Navy's reported obligations.
[End of table]
Completeness: Air Force Missing Data:
In submitting its inventory, the Air Force acknowledged that some data
were missing, particularly the funding source for actions below $10
million. The Air Force attributed this to limited resources available
to find the information and manually enter it.
Table 5: Percentage of Air Force contracts missing data for selected
data elements:
Obligations: 0.0%;
Contractor FTEs: 0.0%;
Funding source: 99.1%[A];
Function performed: 0.0%.
Source: GAO analysis of the Air Force fiscal year 2008 inventory.
[A] The records without funding source data represent 70.8 percent of
the Air Force's reported obligations.
[End of table]
In analyzing the Air Force's inventory data, we identified 2,459 FTEs
not included in their FTE total. This difference occurred because of
the Air Force's decision to record FTE values between -1 and 1 as 0
for 26,117 actions where the Air Force used its formula for estimating
FTEs.[Footnote 17]
Concluding Observations:
Because the inventories of service contracts for fiscal year 2008 were
compiled in different ways, comparisons across the military
departments may be difficult. This is particularly the case for the
contractor FTEs given the substantial differences in how each military
department compiled those numbers. As our analysis demonstrated, the
numbers of FTEs vary based on the factors used to estimate the cost of
contractors performing particular categories of services.
Further, the inventories do not reflect the full universe of service
contracts and for contracts that were included, did not always provide
all of the required information.
As a result, the inventories do not provide comparable or
comprehensive information on DOD's service contracts that could be
used to inform acquisition and workforce decisions.
Plans for Fiscal Year 2009 Inventories and Future GAO Reviews:
In its submission of the fiscal year 2008 inventories, DOD
acknowledged the inconsistencies in the inventories. AT&L has an
effort underway to develop a new, more consistent approach for
compiling the fiscal year 2009 inventories and is currently
considering options for calculating the number of contractor FTEs.
According to DOD officials, guidance regarding this approach is
forthcoming.
Section 803 of the National Defense Authorization Act for Fiscal Year
2010[Footnote 18] directs GAO to report on DOD's inventory in 2010,
2011, and 2012.
Agency Views:
In providing oral comments on a draft of this briefing, a senior AT&L
official stated that the briefing provides a fair assessment of the
methodologies used by the military departments in compiling their
fiscal year 2008 service contract inventories. This official further
commented that the military departments made a good faith effort to
comply with the inventory requirements. He noted that developing and
implementing the methodologies required considerable time and effort,
given the current lack of a DOD-wide source for all of the information
required for the inventories.
Appendix I: Scope and Methodology:
Our objective was to assess the methodology used by the departments of
the Air Force, Navy, and Army to compile the fiscal year 2008 service
contract inventories required by 10 USC § 2330a. To conduct our work,
we:
* obtained and reviewed the military departments' inventories for
fiscal year 2008 and documents describing the methodologies used to
compile them;
* interviewed officials from the following DOD offices to identify the
data sources used to compile the inventories and discuss the
compilation methodologies:
- Office of Acquisition, Technology, and Logistics, Defense
Procurement and Acquisition Policy;
- Department of the Air Force, Office of Air Force Contracting and
Office of Acquisition Integration;
- Department of the Army, Office of the Assistant Secretary for
Manpower and Reserve Affairs;
- Department of the Navy, Office of the Deputy Assistant Secretary of
the Navy for Acquisition and Logistics Management.
To assess the methodologies used and the completeness of the data
contained in the inventories, we extracted data from FPDS-NG on
service contracts active in fiscal year 2008. Using the FPDS-NG data,
we conducted the following analyses.
* For the Air Force, Navy, and Army, we determined obligations under
contracts for services in which the military departments were
identified as the funding agency and a non-DOD agency was identified
as the contracting agency.
* For the Navy, we determined:
- total obligations associated with service contract actions below
$100,000 and actions with de-obligations and;
- total obligations under and number of contracts for services that
were not included in the Navy's inventory.
* For the Army:
- We determined total obligations for selected task orders contained
in the Army's inventory which we then used to compare FTE calculations
using the Air Force and Navy methodologies.
- We identified service contracts included in the Army's inventory
that were coded under PSCs for goods.
FPDS-NG is the primary federal government system for tracking
information on contracts. Our past work has found that FPDS-NG
contains inaccurate data and is not always complete.[Footnote 19] In
addressing the inventory requirement, the military departments relied
to different extents upon information contained in FPDS-NG. In
assessing the military departments' methodologies, we used data from
FPDS-NG and the inventories to help quantify the effects of decisions
made by the military departments to exclude certain categories of
services and contract actions and to replicate the methodologies used
to identify service contracts. We did not attempt to assess the
accuracy or completeness of FPDS-NG data, but rather have used the
data to identify potential inconsistencies in the military
departments' methodologies and their implementation.
In conducting our assessment of the methodologies and the resulting
inventories, we did not attempt to determine the accuracy of the data
contained in each inventory. We also did not evaluate whether any one
of the methodologies resulted in more accurate or reliable inventories
than the others.
We conducted this performance audit from October to November 2009 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Points of Contact:
For more information, contact John Hutton at 202-512-4841 or
huttonj@gao.gov or William Solis at 202-512-8365 or solisw@gao.gov.
[End of Enclosure I: Briefing Slides]
Enclosure II: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
John P. Hutton (202) 512-4841 or huttonj@gao.gov:
William Solis (202) 512-8365 or solisw@gao.gov:
Acknowledgments:
In addition to the contacts named above, Johana R. Ayers, Assistant
Director; Brent Corby; Morgan Delaney Ramaker; Kathryn Edelman; Julia
Kennon; and John Krump made key contributions to this correspondence.
[End of Enclosure II: GAO Contacts and Staff Acknowledgments]
Footnotes:
[1] GAO, High-Risk Series: An Update, [hyperlink,
http://www.gao.gov/products/GAO-09-271] (Washington, D.C.: January
2009).
[2] GAO, Defense Acquisitions: Tailored Approach Needed to Improve
Service Acquisition Outcomes, [hyperlink,
http://www.gao.gov/products/GAO-07-20] (Washington, D.C.: Nov. 9,
2006).
[3] 10 U.S.C. § 2330a (c).
[4] Throughout this letter and the enclosed briefing, we use the term
Navy to refer to the Department of the Navy, which includes both the
Navy and the United States Marine Corps.
[5] FPDS-NG is the primary governmentwide contracting database,
providing information on government contracting actions, procurement
trends, and achievement of socioeconomic goals, such as small business
participation.
[6] According to FPDS-NG, DOD obligated approximately $200 billion on
service contracts in fiscal year 2008. DOD has since indicated that
the fiscal year 2008 total was overstated by $13.9 billion and has
corrected this administrative error in its fiscal year 2009 data. The
difference between the obligations identified in FPDS-NG and the
amount identified in the military departments' inventories is
attributable, in part, to service contracting activities by defense
agencies other than the military departments, which were not included
in our review, and the fact that the Army inventory dollar total was
based on invoiced contract costs rather than obligations.
[7] Guidance for entering data into FPDS-NG indicates that only one
product service code is to be used for each contract action, and this
code should reflect the predominant good or service purchased, even if
other types of goods or services are also being purchased under the
same contract.
[8] One FTE equals 2087 labor hours performed in a year.
[9] DOD submits this report to Congress pursuant to requirements
contained in 10 U.S.C. § 2462(b).
[10] According to the Army, this small subset of contracts provides
the sole basis for the 213,133 contractor FTEs and the $34 billion
spent to acquire services that the Army identified in the July 2009
report to Congress.
[11] Pub. L. No. 111-84 § 803, 123 Stat. 2190 (2009).
[12] For the remainder of this briefing, we use the term Navy to refer
to the Department of the Navy, which includes both the Navy and the
United States Marine Corps.
[13] One FTE equals 2087 labor hours performed in a year.
[14] For our analysis of the Navy's exclusions, we removed contract
actions from the FPDS-NG data we compiled that were associated with
the PSCs for lease or rental of equipment and construction to maintain
consistency with the Navy's original PSC inclusions.
[15] D0D submits this report to Congress pursuant to requirements
contained in 10 U.S.C. § 2462(b).
[16] For example, see GAO, Interagency Contracting. Need for Improved
Information and Policy Implementation at the Department of State,
[hyperlink, http://www.gao.gov/products/GAO-08-578] (Washington D.C.:
May 8, 2008).
[17] As noted by the Air Force, because its inventory included
individual contract actions with de-obligations, the FTE calculation
can result in a negative number.
[18] Pub. L. No. 111-84 § 803, 123 Stat. 2190 (2009).
[19] GAO, Federal Contracting: Observations on the Government's
Contracting Data Systems, [hyperlink,
http://www.gao.gov/products/GAO-09-1032T] (Washington D.C.: Sept. 29,
2009).
[End of section]
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