oversight

Defense Workforce: DOD Needs to Better Oversee In-sourcing Data and Align In-sourcing Efforts with Strategic Workforce Plans

Published by the Government Accountability Office on 2012-02-09.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States Government Accountability Office

GAO             Report to Congressional Committees




February 2012
                DEFENSE
                WORKFORCE
                DOD Needs to Better
                Oversee In-sourcing
                Data and Align In-
                sourcing Efforts with
                Strategic Workforce
                Plans




GAO-12-319
                                                 February 2012

                                                 DEFENSE WORKFORCE
                                                 DOD Needs to Better Oversee In-sourcing Data and
                                                 Align In-sourcing Efforts with Strategic Workforce
                                                 Plans
Highlights of GAO-12-319, a report to
congressional committees




Why GAO Did This Study                           What GAO Found
The Department of Defense (DOD)                  DOD reported on two of three issues required by law: the component involved
relies on contractors for varied                 with each of its fiscal year 2010 in-sourcing actions and the rationale for each
functions, and obligated about                   action. However, DOD did not report the number of contractor employees whose
$200 billion in fiscal year 2010 for             functions were in-sourced, because, DOD officials said, the department does not
contracted services. In-sourcing—                have these data. Specifically, the department noted, in its report to Congress,
moving contracted work to                        that it contracts for services and does not hire individual contractor employees.
performance by DOD employees—has                 Instead, DOD reported the number of new civilian authorizations created due to
been one tool through which DOD                  in-sourcing. Congress has separately required DOD to report the number of
managed its workforce. The National
                                                 contractor employees performing services for DOD, expressed as full-time
Defense Authorization Act for Fiscal
                                                 equivalents, as part of its inventory of activities performed under contracts for
Year 2011 required DOD to report on
its fiscal year 2010 in-sourcing
                                                 services. In its in-sourcing report, DOD said that efforts to comply with this
decisions and required GAO to assess             additional requirement may in the future help inform the number of contractor full-
DOD’s report. The act required DOD to            time equivalents in-sourced.
report, for each decision, the agency or         The Office of the Under Secretary of Defense for Personnel and Readiness
service involved, the basis and                  (OUSD (P&R)) requested information from DOD components on fiscal year 2010
rationale for the decision, and the              in-sourcing actions to produce its report, and the military departments and OUSD
number of contractor employees in-               (P&R) took varying, and in some instances limited, approaches to ensuring the
sourced. GAO assessed the report
                                                 data’s reliability. Additionally, some of the commands GAO contacted made
against these requirements and
                                                 errors in reporting in-sourcing data. For example, 348 of 354 new in-sourcing
examined how DOD prepared the
report and assured itself of the data’s          authorizations by the Navy’s Fleet Forces Command were categorized as
reliability, and the extent the in-              inherently governmental when they should have been categorized as exempt
sourcing actions were aligned with               from private sector performance for continuity of infrastructure operations.
DOD’s strategic workforce plans. GAO             Federal internal control standards state that data verification helps provide
reviewed the in-sourcing report,                 management with reasonable assurance of achieving agency objectives,
examined in-sourcing guidance,                   including compliance with laws. Without accurate data, decision-makers in DOD
reviewed DOD’s recent strategic                  and Congress may not have reliable information to help manage and oversee
workforce plans, and interviewed                 DOD in-sourcing.
appropriate department officials.
                                                 While the mandate did not require the in-sourcing report to align with DOD’s
What GAO Recommends                              strategic workforce plans, it was unclear to what extent the in-sourcing actions
                                                 aligned with DOD’s plan due to differences in the types of data used in the in-
GAO recommends that, for future in-              sourcing report and the most recent workforce plan, and the absence of metrics
sourcing actions, DOD (1) issue                  to measure the in-sourcing goal established in the plan. DOD took some steps
guidance to components on verifying
                                                 toward aligning these efforts, such as establishing a goal for in-sourcing in its
in-sourcing data, and (2) better align
                                                 most recent strategic workforce plan, which was issued in March 2010.
in-sourcing data with strategic
workforce plans and establish metrics            Additionally, OUSD (P&R) officials said that the in-sourcing actions furthered
to measure progress against in-                  DOD’s strategic workforce objectives, but acknowledged they had not
sourcing goals. DOD partially                    established metrics to measure against the in-sourcing goal—which was to,
concurred with the recommendations,              among other things, optimize the department’s workforce mix to maintain
but noted that the challenges identified         readiness and operational capability and ensure inherently governmental
in GAO’s report are not unique to in-            positions were performed by government employees. Additionally, the strategic
sourcing. GAO agrees, but believes               workforce plans coded jobs by occupational series, such as budget analyst, while
actions are necessary to improve                 the in-sourcing report used function codes indicating broad areas of work, such
oversight of DOD’s in-sourcing.                  as logistics. DOD officials told GAO there is no crosswalk between the two. GAO
                                                 has previously reported that strategic workforce planning includes aligning
View GAO-12-319. For more information,
contact Brenda S. Farrell at (202) 512-3604 or   human capital programs with programmatic goals. Without metrics and due to the
farrellb@gao.gov or Belva M. Martin at (202)     differences in the data used, DOD and Congress may have limited insight on the
512-4841 or martinb@gao.gov.                     extent to which in-sourcing actions met strategic workforce goals.
                                                                                         United States Government Accountability Office
Contents


Letter                                                                                     1
               Background                                                                  4
               DOD’s September 2011 In-sourcing Report Addressed Two of the
                  Three Mandated Requirements                                            10
               DOD and Military Department Approaches to Verifying Reported
                  Data Varied                                                            16
               Alignment between In-sourcing Actions and Strategic Workforce
                  Plans Is Unclear                                                       19
               Conclusions                                                               21
               Recommendations for Executive Action                                      22
               Agency Comments and Our Evaluation                                        22

Appendix I     Scope and Methodology                                                     26



Appendix II    DOD Cost Estimating Guidance and Cost Estimate Data Collection            29



Appendix III   Comments from the Department of Defense                                   31



Appendix IV    GAO Contacts and Staff Acknowledgments                                    34



Figures
               Figure 1: Timeline of Selected In-sourcing Events                           9
               Figure 2: Distribution of Total DOD In-sourcing Actions for Fiscal
                        Year 2010                                                        11
               Figure 3: Reasons DOD Cited for Its Fiscal Year 2010 In-sourcing
                        Decisions                                                        12
               Figure 4: Reasons Cited by the Military Services as Reported to
                        Congress                                                         13




               Page i                                       GAO-12-319 DOD In-sourcing Report
Abbreviations

DOD               Department of Defense
FY                fiscal year
NDAA              National Defense Authorization Act
OSD               Office of the Secretary of Defense
OUSD              Office of the Under Secretary of Defense
P&R               Personnel and Readiness




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Page ii                                                GAO-12-319 DOD In-sourcing Report
United States Government Accountability Office
Washington, DC 20548




                                   February 9, 2012

                                   Congressional Committees

                                   The Department of Defense (DOD) relies on contractors to perform
                                   functions as varied as professional and management support, information
                                   technology support, and weapon system and intelligence support, and in
                                   fiscal year 2010, DOD obligated about $200 billion for contracted
                                   services. Contracting for services can offer benefits and flexibility to DOD,
                                   but our prior work has also shown that reliance on contractors to support
                                   core missions can place the government at risk of transferring
                                   governmental responsibilities to contractors. 1 Further, we have previously
                                   reported that having the right number of civilian personnel with the right
                                   skills is critical to achieving DOD’s mission. 2 In-sourcing—moving work
                                   performed by contractors to performance by DOD employees 3—is one
                                   tool through which DOD can manage its total force (which includes DOD
                                   civilians, active and reserve military personnel, and contractors) and help
                                   ensure it has the necessary capabilities in its DOD civilian workforce to
                                   perform key functions and reduce the risk of over-reliance on its
                                   contractor workforce. Managing the total force through strategic workforce
                                   planning helps organizations such as DOD determine if they have the
                                   appropriate total workforce balance with the necessary skills and
                                   competencies to achieve their strategic goals.




                                   1
                                    See, for example, GAO, High-Risk Series: An Update, GAO-11-278 (Washington, D.C.:
                                   February 2011); Defense Management: DOD Needs to Reexamine Its Extensive Reliance
                                   on Contractors and Continue to Improve Management and Oversight, GAO-08-572T
                                   (Washington, D.C.: Mar. 11, 2008), and Defense Acquisitions: DOD’s Increased Reliance
                                   on Service Contractors Exacerbates Long-standing Challenges, GAO-08-621T
                                   (Washington, D.C.: Jan. 23, 2008).
                                   2
                                    See, for example, GAO, DOD Civilian Personnel: Competency Gap Analyses and Other
                                   Actions Needed to Enhance DOD’s Strategic Workforce Plans, GAO-11-827T
                                   (Washington, D.C.: July 14, 2011) and Human Capital: Opportunities Exist to Build on
                                   Recent Progress to Strengthen DOD’s Civilian Human Capital Strategic Plan,
                                   GAO-09-235 (Washington, D.C.: Feb. 10, 2009).
                                   3
                                     DOD defines in-sourcing as the conversion of any currently contracted service or
                                   function to DOD civilian or military performance (Deputy Secretary of Defense, In-sourcing
                                   Contracted Services—Implementation Guidance, May 28, 2009). However, for the
                                   purposes of this report we refer only to conversion to civilian, rather than military,
                                   performance.




                                   Page 1                                                GAO-12-319 DOD In-sourcing Report
In April 2009, the Secretary of Defense announced his intent to reduce
the department’s reliance on contractors through in-sourcing, stating that
the department’s goal was to hire as many as 13,000 new civil servants in
fiscal year 2010 to replace contractors and up to 30,000 new civil
servants in place of contractors over a 5-year period.

The National Defense Authorization Act for Fiscal Year 2011 (FY11
NDAA) required DOD to report to the congressional defense committees
not later than March 31, 2011, on its fiscal year 2010 in-sourcing
decisions. 4 Specifically, the act required the department to report, for
each in-sourcing decision, (1) the agency or service of the department
involved in the decision, (2) the basis and rationale for the decision, and
(3) the number of contractor employees whose functions were converted
to performance by DOD civilian employees. DOD submitted its report to
the congressional armed services committees on September 7, 2011, and
DOD officials told us the department submitted the report to the
congressional appropriations committees on either September 7 or 8,
2011.

The act also required that we assess DOD’s report within 120 days of the
report’s issuance. 5 This report addresses the extent to which DOD
reported on its fiscal year 2010 in-sourcing decisions as required by the
act. On the basis of congressional interest, we also address how DOD
prepared its report on fiscal year 2010 in-sourcing decisions and the
extent to which it assured itself of the data’s reliability, and the extent to
which DOD’s fiscal year 2010 in-sourcing decisions were aligned with the
department’s recent strategic workforce plans.

To evaluate the extent to which DOD reported on its fiscal year 2010 in-
sourcing decisions, we reviewed DOD’s report and compared it with the
reporting requirements specified in the legislation. We also met with
officials in the Office of the Under Secretary of Defense for Personnel and
Readiness (OUSD (P&R)) responsible for preparing the report, and
representatives from each of the three military departments as well as
select major commands to understand the report’s underlying data. We
focused our work for this and the remainder of our objectives on the


4
  The Ike Skelton National Defense Authorization Act for Fiscal Year 2011, Pub. L. No.
111-383, §323(c) (1) (2011).
5
    Pub. L. No. 111-383 § 323(c) (2) (2011).




Page 2                                                GAO-12-319 DOD In-sourcing Report
military departments because together they constituted the majority of in-
sourcing actions in fiscal year 2010. For the purposes of this review, we
selected a non-probability sample of commands from each military
service, which included at a minimum the largest two commands in each
service by volume of in-sourcing actions in fiscal year 2010. The sample
of commands is not generalizable to all military department major
commands.

To determine the process DOD used to prepare the report and the extent
to which the Office of the Secretary of Defense (OSD) and the military
departments assured themselves of the reliability of the data, we
reviewed our prior work on standards for internal control in the federal
government. 6 We also reviewed DOD-issued guidance on the in-sourcing
process, and met with officials in OUSD (P&R) responsible for preparing
the report, as well as representatives of each of the three military
departments responsible for compiling data for the report. We analyzed
the data contained in the report to identify patterns in the in-sourcing
actions of the military departments, and met with representatives of each
military department and the selected major commands to identify the
reasons for those patterns. We used these data to portray the distribution
of in-sourcing actions across the military departments and other DOD
agencies, as well as the distribution of in-sourcing rationales in the
military services and within certain major commands. Although we found
issues with some of the command-level data, such as some erroneously
reported in-sourcing rationales, and are making a recommendation to this
effect, we found the data to be sufficiently reliable for the purposes of
providing broad percentages about in-sourcing actions.

To determine the extent to which DOD’s fiscal year 2010 in-sourcing
decisions were aligned with the department’s recent strategic workforce
plans, we reviewed DOD guidance on in-sourcing implementation and our
prior work on strategic workforce planning, as well as Office of Personnel
Management standards for assessing human capital planning. In addition,
we compared information reflecting DOD’s fiscal year 2010 in-sourcing
decisions with its fiscal year 2009 update to its 2006-2010 strategic




6
 GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1
(Washington, D.C.: November 1999).




Page 3                                             GAO-12-319 DOD In-sourcing Report
             workforce plans. 7 We also interviewed officials in OUSD (P&R)
             responsible for preparing both the in-sourcing report and the strategic
             workforce plans, as well as officials in the Office of the Under Secretary of
             Defense for Acquisition, Technology, and Logistics’ Office of Human
             Capital Initiatives, to determine what steps were taken to align in-sourcing
             efforts with strategic workforce plans.

             We conducted this performance audit from May 2011 to February 2012 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. We discuss our scope and
             methodology in more detail in appendix I.


             Beginning with the National Defense Authorization Act for Fiscal Year
Background   2006, 8 Congress required the Secretary of Defense to issue guidelines
             requiring DOD to consider using federal employees to perform work that
             was currently being performed or would otherwise be performed under
             DOD contracts. Under the guidelines, special consideration was given to
             contracts that had been performed by federal government employees on
             or after October 1, 1980, were associated with the performance of
             inherently governmental functions, 9 had not been awarded on a
             competitive basis, or were determined to be poorly performed due to
             excessive costs or inferior quality. 10



             7
               DOD, Strategic Civilian Human Capital Plan (SCHCP) 2006-2010, Fiscal Year 2009
             status report (Mar. 31, 2010), and DOD Strategic Human Capital Plan Update, The
             Defense Acquisition Workforce (April 2010). OUSD (P&R) officials told us these were the
             strategic workforce plans in place at the time of the fiscal year 2010 in-sourcing actions.
             8
              The National Defense Authorization Act for Fiscal Year 2006, Pub. L. No. 109-163, §
             343 (2006).
             9
               Inherently governmental functions include functions that require discretion in applying
             government authority or value judgments in making decisions for the government. The
             Federal Acquisition Regulation (FAR) provides examples of such functions, including the
             determination of agency policy, such as determining the content and application of
             regulations, or the determination of federal program priorities for budget requests.
             FAR § 7.503(c).
             10
                  Pub. L. No. 109-163, § 343 (a) (2) (2006).




             Page 4                                                  GAO-12-319 DOD In-sourcing Report
The National Defense Authorization Act for Fiscal Year 2008 codified at
section 2463 of title 10 of the United States Code (U.S. Code) revised the
guidelines and procedures for use of civilian employees to perform DOD
functions. 11 This section directed the Under Secretary of Defense for
Personnel and Readiness (P&R) to devise and implement guidelines and
procedures to ensure that consideration was given to using, on a regular
basis, DOD civilian employees to perform new functions. In addition, the
guidelines and procedures were to ensure that functions that were
performed by contractors and could be performed by DOD civilian
employees were given the same consideration. Congress also directed
that the guidelines and procedures may not include any specific limitation
or restriction on the number of functions or activities that may be
converted to performance by DOD civilian employees. The act further
provided that DOD may not conduct a public-private competition prior to
in-sourcing such functions. The act also added a new section describing
the functions that were to receive special consideration from DOD when
considering the use of DOD civilian employees. Additionally, the act
required special consideration be given to a new requirement that is
similar to a function previously performed by DOD civilian employees or is
a function closely associated with the performance of an inherently
governmental function. 12

The National Defense Authorization Act for Fiscal Year 2008 also
amended section 2330a of title 10 of the U.S. Code. The act required
DOD to compile and submit to Congress an annual inventory of the
activities performed during the preceding fiscal year pursuant to contracts
for services for or on behalf of DOD. 13 Among other things, the entry for
an activity on the inventory had to include, for the fiscal year covered by
such entry, the functions and missions performed by the contractor and
the number of contractor employees (or its equivalent), paid for the


11
  The National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181, §
324 (2008).
12
   Closely associated with inherently governmental functions are those that, while not
inherently governmental, may approach the category because of the nature of the
function, the manner in which the contractor performs the contract, or the manner in which
the government administers performance under such a contract. The FAR provides
examples of such functions, including services that involve or relate to the development of
regulations, or services that involve or relate to budget preparation, including workload
modeling, fact-finding, and should-cost analyses. FAR § 7.503(d).
13
     Pub. L. No. 110-181, § 807 (2008).




Page 5                                                 GAO-12-319 DOD In-sourcing Report
performance of the activity. The National Defense Authorization Act for
Fiscal Year 2011 again amended section 2330a of title 10 of the U.S.
Code. Among other things the act now requires DOD to report the
number of contractor employees, expressed as full-time equivalents for
direct labor, using direct labor hours and associated cost data collected
from contractors (except that estimates may be used where such data is
not available and cannot reasonably be made available in a timely
manner for the purpose of the inventory). 14

Section 2330a (e) of title 10 of the U.S. Code requires each Secretary of
a military department or head of a defense agency to review this annual
inventory for several purposes, one of which is to identify activities that
should be considered for conversion to performance by DOD civilian
employees pursuant to section 2463 of title 10 of the U.S. Code. In turn
section 2463 requires the Secretary of Defense to make use of the 2330a
inventory for the purpose of identifying functions that should be
considered for performance by DOD civilian employees. 15

Under DOD’s policy for determining the appropriate mix of military and
DOD civilians and contractor support, risk mitigation shall take
precedence over cost savings when necessary to maintain appropriate
control of government operations and missions. 16 This policy provides
manpower mix criteria for assessing which functions warrant performance
by military or civilian personnel due to their associated risks, and which
functions will therefore be considered exempt from performance by
contractor support. 17 DOD issued in-sourcing guidance in April 2008 and
again in May 2009 to assist components in implementing these legislative




14
     Pub. L. No. 111-383, § 321 (2011).
15
     Pub. L. No. 110-181, § 324 (2008).
16
  DOD Instruction 1100.22, Policy and Procedures for Determining Workforce Mix
(Apr. 12, 2010).
17
   Under DOD Instruction 1100.22, certain functions will meet DOD’s criteria to be
considered exempt from performance by the private sector, e.g., activities necessary to
provide for the readiness and workforce management needs of DOD, maintain core
capabilities and readiness, or mitigate operational risk. Some, but not all, functions
identified as closely associated with inherently governmental functions will meet the
criteria necessary to be deemed exempt functions by DOD.




Page 6                                                GAO-12-319 DOD In-sourcing Report
requirements. 18 According to the May 2009 guidance, DOD components
should first confirm that a particular mission requirement is still valid and
enduring; that is, that DOD will have a continued need for the service
being performed. If the requirement is still valid, the component should
consider in-sourcing the function. If the component determined that the
function under review was inherently governmental or exempt from
private sector performance no cost analysis was required. Possible
rationales to in-source include the following, according to the May 2009
in-sourcing guidance:

•    The function is inherently governmental; that is, the function is so
     closely related to the public interest as to require performance by
     government employees.
•    The function is exempt from private sector performance to support the
     readiness or workforce management needs of DOD. According to
     DOD’s policy for determining the appropriate mix of military, DOD
     civilians, and contractor support, a function could be exempt from
     private sector performance for a variety of reasons, including
     functions exempt for career progression reasons, continuity of
     infrastructure operations, and mitigation of operational risk.
•    The contract is for unauthorized personal services. Special
     authorization is required for DOD to engage in personal services
     contracts, which create a direct employer/employee relationship
     between the government and the contractor’s personnel.
•    There are problems with contract administration due to a lack of
     sufficiently trained and experienced officials available to manage and
     oversee the contract.

Other than in-sourcing, OUSD (P&R) officials told us that DOD may be
able to address the above circumstances by, among other approaches,
restructuring the contract or changing the way the contract is overseen.
DOD’s guidance does not require components to prepare cost estimates
when they cite one of the above reasons as the basis for their in-sourcing
decision.




18
  Deputy Security of Defense, Implementation of Section 324 of the National Defense
Authorization Act for Fiscal Year 2008—Guidelines and Procedures on In-sourcing New
and Contracted-Out Functions (Apr. 4, 2008) and In-sourcing Contracted Services—
Implementation Guidance (May 28, 2009).




Page 7                                             GAO-12-319 DOD In-sourcing Report
In situations in which none of the factors cited above are applicable,
DOD’s guidance instructs components to provide “special consideration”
as discussed above, and if DOD civilians could perform the work, conduct
a cost analysis to determine whether DOD civilians were the lowest-cost
provider. According to a December 2009 in-sourcing plan submitted to
Congress, 19 DOD based this requirement on section 129a of title 10 of the
U.S. Code, which requires DOD to determine the least costly personnel
consistent with military requirements and other needs of the
department. 20 Thus, DOD components may also in-source for cost
reasons when the work could otherwise be performed by a private
contractor.

DOD stated in its fiscal year 2010 budget submission to Congress that it
expected to save $900 million in fiscal year 2010 from in-sourcing. To
support the in-sourcing initiative, in April 2009 the Office of the Under
Secretary of Defense (Comptroller) issued a budget decision which
decreased funding for support service contracts and increased funding for
new civilian authorizations across DOD components. 21 In December
2009, DOD issued a report to Congress on its planned fiscal year 2010
in-sourcing efforts, stating that after component reviews, the department
planned to create as many as 17,000 new civilian authorizations as a
result of in-sourcing in fiscal year 2010.

In August 2010, the Secretary of Defense stated that he was not satisfied
with the department’s progress in reducing over-reliance on contractors.
Representatives of OUSD (P&R) and the Office of the Under Secretary of
Defense (Comptroller) told us that although DOD avoided $900 million in
costs for contracted support services in fiscal year 2010 due to the budget
decision to reduce funds associated with in-sourcing, total spending
across all categories of service contracts increased in fiscal year 2010 by
about $4.1 billion. To accelerate the process and achieve additional


19
   DOD, Report to the Congressional Defense Committees on the Department of
Defense’s FY 2010 In-sourcing Initiative and Plans (December 2009).
20
     10 U.S.C. § 129a.
21
   This budget action, called Resource Management Decision 802, assumed a 40 percent
savings from the in-sourcing actions, so that roughly 60 percent of the original funding for
contracted services went toward new civilian authorizations, while the remainder was
retained by the Comptroller as savings available for other purposes. Thus, DOD
components were required to either find savings under in-sourcing or reduce the functions
they performed, or both.




Page 8                                                  GAO-12-319 DOD In-sourcing Report
                                         savings, the Secretary directed a 3-year reduction in funding for service
                                         support contracts categorized by DOD as contracted support services. He
                                         also directed a 3-year freeze on the level of DOD civilian authorizations at
                                         OSD, the defense agencies, and the Combatant Commands, and stated
                                         that with regard to in-sourcing, no more DOD civilian authorizations would
                                         be created after the then-current fiscal year to replace contractors. He
                                         also noted that some exceptions could be made for critical areas such as
                                         the acquisition workforce. Further, the statutory requirement to regularly
                                         consider in-sourcing contracted services remains in effect, and DOD
                                         officials told us that, accordingly, in-sourcing continues in the department,
                                         though on a more limited basis. See figure 1 for a timeline of key events
                                         related to DOD in-sourcing.

Figure 1: Timeline of Selected In-sourcing Events




                                         Additionally, section 115b of title 10 of the U.S. Code requires DOD to
                                         annually submit to the defense committees a strategic workforce plan to
                                         shape and improve its civilian workforce. Among other requirements, the
                                         plan is to include an assessment of the appropriate mix of military,
                                         civilian, and contractor personnel capabilities. OUSD (P&R) is responsible
                                         for developing and implementing the strategic plan in consultation with
                                         the Office of the Under Secretary of Defense for Acquisition, Technology,
                                         and Logistics. 22 Since 2001, we have listed federal human capital
                                         management, of which strategic workforce planning is a key part, as a
                                         governmentwide high-risk area. 23 Similarly, we have identified challenges


                                         22
                                              10 U.S.C. § 115b (a) (2).
                                         23
                                              GAO-11-278.




                                         Page 9                                        GAO-12-319 DOD In-sourcing Report
                    with having a sufficient number of adequately trained acquisition and
                    contract oversight personnel as a factor in continuing to identify DOD
                    contract management as a DOD-specific high-risk area.


                    DOD’s September 2011 in-sourcing report addressed the legislative
DOD’s September     requirements to report the service or agency involved with each of its
2011 In-sourcing    fiscal year 2010 in-sourcing actions and the rationale for each action, but
                    did not report the number of contractor employees whose functions were
Report Addressed    in-sourced, as specified in the act. DOD stated that it could not report the
Two of the Three    number of contractor employees because it contracts for services, rather
Mandated            than hiring contractor employees directly. An OUSD (P&R) official noted
                    that one of the data elements Congress has required DOD to include in
Requirements        its annual inventories of contracted services is the number of contractor
                    employees, expressed as full-time equivalents, that performed each
                    activity, 24 and DOD is in the process of implementing a revised approach
                    to collect these data directly from contractors.


Service or Agency   DOD’s report identified nearly 17,000 newly created civilian
Information         authorizations 25 as a result of in-sourcing actions in fiscal year 2010, and
                    for each of these new authorizations, the department identified the DOD
                    component involved with the decision. 26 For example, DOD reported that
                    42 percent of the new authorizations were established in the Army;
                    28 percent in the Air Force; 16 percent in the Department of the Navy
                    (including the Marine Corps); 27 and 14 percent in other DOD agencies.
                    The report also in many cases identified the major command,


                    24
                         10 U.S.C. § 2330a (c) (2) (E).
                    25
                      DOD’s in-sourcing report gives slightly different figures for the total number of in-
                    sourcing authorizations. In a chart showing the distribution of in-sourcing across different
                    DOD components, it gives the total as 16,782. In the data contained in the report listing
                    each component’s in-sourcing actions, the total adds to 16,775.
                    26
                       As of October 31, 2011, DOD reported that it employed about 790,000 federal civilians.
                    In its annual inventory of contracted services, required under 10 U.S.C. 2330a, DOD
                    reported to Congress that the level of contractor manpower performing services on DOD’s
                    behalf during fiscal year 2010 was equivalent to 623,000 full-time employees. We note
                    that our prior work has found limitations in DOD’s reporting associated with this inventory.
                    GAO-11-192.
                    27
                      Throughout this report, we refer to the Department of the Navy when including the
                    Marine Corps, and to the Navy when the Marine Corps is excluded.




                    Page 10                                                 GAO-12-319 DOD In-sourcing Report
                            suborganization, or directorate of each DOD component that made the in-
                            sourcing decision. For example, the Air Force identified whether Air
                            Combat Command, U.S. Air Forces Europe, or another agency within the
                            Air Force made the decision. See figure 2 for the overall distribution of
                            DOD’s fiscal year 2010 in-sourcing actions across its components.

                            Figure 2: Distribution of Total DOD In-sourcing Actions for Fiscal Year 2010




                            a
                                Department of the Navy, including Marine Corps.


Rationale for In-sourcing   The report also provided information on the rationale for each in-sourcing
                            action across DOD. According to DOD, half of the actions were based on
                            a determination that the function would be more cost effective if
                            performed by DOD civilian employees. While section 323 of the FY11
                            NDAA did not require DOD to report cost data on in-sourcing, DOD
                            issued guidance in January 2010 on cost estimating methodology for
                            cost-based in-sourcing decisions and the military departments collected
                            and reported some cost estimate data to OUSD (P&R). See appendix II
                            for information on DOD’s guidance on estimating in-sourcing costs and
                            collection of cost estimate data.

                            Additionally, DOD indicated in its September 2011 in-sourcing report to
                            Congress that about 41 percent of the new authorizations would perform
                            functions DOD determined to be exempt from private sector performance,
                            such as those necessary for career progression reasons, continuity of
                            infrastructure operations, or risk mitigation (which included oversight and


                            Page 11                                               GAO-12-319 DOD In-sourcing Report
control of functions that are closely associated with inherently
governmental functions). Lastly, DOD reported that about 9 percent of the
new authorizations were created to perform work that was determined to
be inherently governmental (see fig. 3).

Figure 3: Reasons DOD Cited for Its Fiscal Year 2010 In-sourcing Decisions




Our analysis of the data contained in the DOD in-sourcing report showed
that the military services differed in the rationales they cited as the basis
for their in-sourcing actions. For example, 86 percent of the Army’s new
authorizations (5,969 of 6,953) resulting from in-sourcing were deemed
exempt from private sector performance in order to reduce the risks
associated with contractors performing particular functions that were
closely associated with inherently governmental functions. In contrast, 95
percent of the Air Force’s new in-sourcing authorizations (4,495 of 4,732)
were cost-based and 100 percent of the new Marine Corps authorizations
(all 1,042) were cost-based. While the Navy reported that the basis for its
fiscal year 2010 in-sourcing actions varied (26 percent or 441 cost-based,
31 percent or 529 inherently governmental, and 43 percent or 716 exempt
from private sector performance, out of a total of 1,686), each of the
Navy’s largest major commands by volume of in-sourcing actions tended
to vary as well, with each command citing primarily one basis for its in-



Page 12                                           GAO-12-319 DOD In-sourcing Report
                                        sourcing actions which differed among commands. For example, Naval
                                        Sea Systems Command reported that its in-sourcing actions largely
                                        involved functions considered exempt from private sector performance for
                                        career progression reasons, while Pacific Fleet Command in-sourced 223
                                        out of 224 positions for cost reasons. See figure 4 for the distribution of
                                        the reasons cited for in-sourcing for each military service.

Figure 4: Reasons Cited by the Military Services as Reported to Congress




                                        Note: Numbers may not add due to rounding.
                                        a
                                         Navy data are as reported to Congress and include errors in certain Navy command data, which we
                                        discuss in this report.


                                        OUSD (P&R) and military service officials told us these differences reflect
                                        the specific missions and functions of commands and differences in the
                                        emphases of military services in the in-sourcing process. For example,
                                        Army officials told us that the Army chose to in-source a large number of
                                        functions which were closely associated with inherently governmental
                                        functions to reduce risk associated with having contractors perform that
                                        work. By contrast, Air Force officials told us that they gave “special
                                        consideration” to in-sourcing functions closely associated with inherently
                                        governmental, however, because the Air Force had sufficient in-house
                                        capability in place to oversee the contracted work and could continue
                                        contracting for those functions, the Air Force performed costs estimates
                                        and in-sourced these functions for cost reasons. Under DOD’s
                                        implementation of section 2463 of title 10 of the U.S. Code, even though



                                        Page 13                                                   GAO-12-319 DOD In-sourcing Report
                            a function is identified as closely associated with inherently governmental,
                            unless that function meets DOD’s exempt criteria, the function may only
                            be in-sourced if a cost savings will result. 28

                            Furthermore, our work found that differences in the reasons cited for the
                            in-sourcing actions were, in part, due to actions by the military services
                            and major commands to focus their efforts on different objectives when
                            identifying contracts for possible in-sourcing. For example, Air Force and
                            Marine Corps command officials we met with indicated that their objective
                            was to realize cost savings from in-sourcing in order to live within the
                            budget reductions associated with the DOD Comptroller’s April 2009
                            budget decision, which cut funds from contracted services and placed a
                            portion of those funds in civilian authorizations accounts. By contrast,
                            officials of Naval Sea Systems Command told us they pursued an in-
                            sourcing process based on an analysis the command had performed of
                            weaknesses in its internal capabilities and over-reliance on contactors,
                            and this resulted in categorizing the command’s in-sourcing actions as
                            exempt from private sector performance for career progression reasons.
                            Similarly, at one Army command, officials we met with in-sourced mainly
                            due to a statutory requirement that security guards on military bases be
                            government civilians.

                            DOD’s in-sourcing report further noted that in-sourcing has been an
                            effective tool for the department to rebalance its workforce, realign
                            inherently governmental and other critical work to government
                            performance, and in many cases, generate resource efficiencies for
                            higher priority goals.


DOD Did Not Provide the     DOD’s in-sourcing report did not provide the number of contractor
Number of Contractor        employees whose functions were in-sourced as required, stating that the
Employees Whose             department did not report this information because the department does
                            not directly employ or hire individual contractor employees. DOD further
Functions Were In-sourced   stated that the department contracts for services to be performed, so the
                            number of employees used to perform these services is not a decision of
                            the department but is at the discretion of the contractor. The report also




                            28
                              Deputy Secretary of Defense, In-Sourcing Contracted Services-Implementation
                            Guidance (May 28, 2009).




                            Page 14                                            GAO-12-319 DOD In-sourcing Report
stated that the department’s in-sourcing actions are focused on services
and not individual contractor positions or employees.

OUSD (P&R) officials told us that DOD focuses on contracting for
services rather than the number of contractor employees providing these
services. OUSD (P&R) officials further noted that the department does
not currently have complete information on the number of full-time
equivalents of contractor employees providing services to the department.
We recognize that the manner in which the service will be performed
under the contract is often a decision of the contractor. However, the level
of contractor personnel required to perform each activity is a key
component of total workforce management. As previously noted, section
2330a of title 10 of the U.S. Code requires DOD to submit to Congress an
annual inventory of all activities performed pursuant to contracts for
services and data associated with each activity to include the number of
contractor employees, expressed as full-time equivalents, based on the
number of direct labor hours and associated cost data collected from
contractors, paid for performance of the contracted services. 29 Our prior
work has found that DOD faces limitations in obtaining or estimating this
information. 30 For example, we found that the federal government’s
primary data system for tracking information on contracting actions does
not provide all the data elements required for the inventory of contracted
services. Though DOD has submitted four annual inventories to
Congress, as noted in our prior work, with the exception of the Army’s
inventory data, the information in the DOD inventories is largely derived
from databases that do not collect the information required by section
2330a of title 10 of the U.S. Code. In its September 2011 in-sourcing
report to Congress, DOD noted that ongoing efforts to collect the
information required by section 2330a may in the future help inform the
number of contractor full-time equivalents in-sourced. In November 2011
DOD submitted to Congress a plan to collect personnel data directly from
contractors. According to this plan, DOD will institute a phased-in
approach to do so by fiscal year 2016.




29
     Title 10, U.S.C. Section 2330a (c) (E) (2010).
30
     GAO-11-192.




Page 15                                               GAO-12-319 DOD In-sourcing Report
                        To produce the report on fiscal year 2010 in-sourcing actions, OUSD
DOD and Military        (P&R) requested that DOD components provide certain information about
Department              their fiscal year 2010 in-sourcing actions, and DOD and the military
                        departments took varying, and in some instances limited, approaches to
Approaches to           ensuring the reliability of the reported data. For example, the Air Force
Verifying Reported      required major commands to certify the accuracy of the data they
Data Varied             reported to Air Force headquarters, while the Navy also delegated
                        responsibility for ensuring data reliability to its major commands but did
                        not establish a policy requiring data certifications. GAO’s Standards for
                        Internal Control in the Federal Government states that internal controls,
                        which include verifications and edit checks, help provide management
                        with reasonable assurance that agencies have achieved their objectives,
                        including compliance with applicable laws and regulations and the
                        reliability of financial and other internal and external reports. 31


Process of Collecting   To obtain data for the report, OUSD (P&R) sent a reporting template to
Report Data             DOD components which requested the following information:

                        •     the name of the component,
                        •     major command/suborganization/directorate,
                        •     location,
                        •     in-sourcing rationale,
                        •     estimated annual savings,
                        •     DOD function code, 32
                        •     occupational series, 33
                        •     whether the position was filled,
                        •     whether it was part of the defense acquisition workforce, and
                        •     whether the action had a small business impact.

                        OUSD (P&R) included a subset of this information in the September 2011
                        in-sourcing report to Congress, including the component, major
                        command/suborganization/directorate, location, rationale, and function
                        code.


                        31
                             GAO/AIMD-00-21.3.1.
                        32
                          DOD function codes describe work performed in the defense infrastructure and
                        operating forces in direct support of military and civil works missions.
                        33
                          Occupational series codes describe positions with similar specialized line of work and
                        qualification requirements.




                        Page 16                                               GAO-12-319 DOD In-sourcing Report
                  To provide the data, both the Air Force and the Department of the Navy
                  obtained data from their respective major commands, while the Army
                  compiled its in-sourcing data at the headquarters level using several data
                  sources originally populated by major commands. The major commands
                  we met with in the Air Force and the Department of the Navy—like the
                  Army headquarters—used various information systems and other sources
                  in compiling their in-sourcing data, since no one data source could
                  provide all the information required. These data sources included
                  personnel databases such as the Defense Civilian Personnel Data
                  System as well as service-specific personnel systems, and the results of
                  reviews of contracts and inventories of contracted services, among other
                  sources.


Data Validation   The Air Force required major commands to certify the accuracy of the
                  data they reported to Air Force headquarters on each in-sourcing action.
                  More specifically, the guidance required reviews and certifications by key
                  personnel—including reviews by personnel, contracting, finance, and
                  manpower officials. 34 The guidance included a worksheet which required
                  certifications of all the data contained in the business case analyses
                  which were required for each in-sourcing action. Air Force officials told us
                  that the data contained in the business case analyses were used by
                  major commands to generate the reports on in-sourcing actions submitted
                  by the major commands to Air Force headquarters.

                  The Department of the Navy also delegated responsibility for ensuring
                  data reliability to its major commands, though it did not establish a
                  certification requirement or issue other guidance to help ensure the
                  reliability of the in-sourcing data it collected and reported to OUSD (P&R)
                  for the in-sourcing report to Congress. Army headquarters officials told us
                  that they had established a general level of accuracy in the in-sourcing
                  data by cross-checking three databases in order to produce the data
                  reported to OUSD (P&R), and by sending the personnel data to major
                  commands to cross-check with reviews of contracted services. However,
                  Army headquarters officials told us only a limited number of commands
                  responded to this data request in time to include their checks in the
                  submission to OUSD (P&R). Army officials told us the department did not



                  34
                    Air Force, Air Force Checklist: In-Sourcing Procedures Guide (Using
                  DTM_COMPARE35 to Perform Costing in Accordance with DTM 09-007) (Mar. 17, 2010).




                  Page 17                                         GAO-12-319 DOD In-sourcing Report
establish a formal mechanism or issue guidance to ensure the reliability
of the in-sourcing data it reported to OUSD (P&R), but Army headquarters
officials told us that although the in-sourcing data they reported was not of
auditable accuracy, it generally reflected commands’ in-sourcing actions.

At the OSD level, OUSD (P&R) officials told us that due to time and
resource constraints, they did not verify or validate the in-sourcing data
they collected beyond checking for obvious errors such as omissions, and
performing cross-checks with data from the department’s inventory of
inherently governmental and commercial activities. Where disconnects
were identified, an OUSD (P&R) official told us they went back to the
DOD components for correction of inconsistencies. However, the official
told us that there is no mechanism at the OSD level to verify the accuracy
of components’ data, and that this limitation on data verification exists for
all activities in the department, not just in-sourcing. OUSD (P&R) officials
told us that DOD intentionally pursued a decentralized in-sourcing
process to reduce bureaucratic procedures that would have limited
commands’ abilities to make timely in-sourcing decisions.

Our work identified either an inaccuracy in the information reported to
OUSD (P&R) for the in-sourcing report or concerns about the accuracy of
the data included in the report to Congress at four of the nine major
commands we met with, as the following examples illustrate:

•    The Navy’s Fleet Forces Command acknowledged that while they
     reported establishing 348 authorizations (out of a total of 354 fiscal
     year 2010 in-sourcing authorizations) to perform information
     technology functions that were inherently governmental, these
     authorizations should have been categorized as exempt from private
     sector performance for continuity of infrastructure operations. 35
     Similarly, Space and Naval Warfare Systems Command officials told
     us that 130 of their reported 131 total fiscal year 2010 in-sourcing
     authorizations that were identified as inherently governmental were
     actually in-sourced for career progression reasons.
•    Army Medical Command officials told us they did not believe that the
     data submitted by the Army for DOD’s in-sourcing report accurately



35
  These actions were associated with the Navy’s efforts to upgrade the Navy/Marine
Corps Intranet. For additional information on these efforts, see GAO, Information
Technology: Better Informed Decision Making Needed on Navy’s Next Generation
Enterprise Network Acquisition, GAO-11-150 (Washington, D.C.: Mar. 11, 2011).




Page 18                                             GAO-12-319 DOD In-sourcing Report
                            indicated the correct number of new authorizations as a result of in-
                            sourcing by Army Medical Command in fiscal year 2010. Command
                            officials told us that because command staff did not have a consistent
                            understanding of when a new authorization fit the definition of in-
                            sourcing, in some cases new authorizations were coded as in-
                            sourcing when they should not have been, and in other cases new in-
                            sourcing authorizations were not coded as such. The officials said that
                            as a result, the data Army headquarters drew on to compile the in-
                            sourcing data contained both under- and over-reporting of in-sourcing
                            actions. Nevertheless, they said they believed the data, though not
                            precisely accurate, reflected the scale of in-sourcing activity at the
                            command in fiscal year 2010.

                      The need for accurate data is not unique to in-sourcing decisions. GAO’s
                      Standards for Internal Control in the Federal Government states that
                      internal controls, which include verifications and edit checks, help provide
                      management with reasonable assurance that agencies have achieved
                      their objectives, including compliance with applicable laws and
                      regulations and the reliability of financial and other internal and external
                      reports. 36 Without access to accurate data, decision makers in DOD and
                      Congress may not have reliable information to help manage and oversee
                      DOD’s in-sourcing actions.


                      While section 323 of the FY11 NDAA did not require the in-sourcing
Alignment between     report to address whether DOD’s fiscal year 2010 in-sourcing actions
In-sourcing Actions   aligned with the department’s strategic workforce plans, DOD officials told
                      us that the department had taken some initial steps to align these efforts.
and Strategic         Further, DOD officials indicated that DOD’s fiscal year 2010 in-sourcing
Workforce Plans Is    efforts were generally consistent with the department’s strategic
Unclear               workforce objectives. DOD’s in-sourcing implementation guidance
                      required components to identify contracted services for possible in-
                      sourcing as part of a total force approach to strategic human capital
                      planning, and we and the Office of Personnel Management have
                      identified aligning an organization’s human capital program with its
                      current and emerging mission and programmatic goals as a critical need




                      36
                           GAO/AIMD-00-21.3.1.




                      Page 19                                        GAO-12-319 DOD In-sourcing Report
of strategic workforce planning. 37 However, differences in the types of
data used in the in-sourcing report and workforce plans hinder an
accurate assessment of the degree to which DOD’s use of in-sourcing
achieved the department’s strategic workforce objectives.

With respect to the steps DOD took to align in-sourcing with its strategic
workforce plans, the department identified a goal for the in-sourcing
initiative in its March 2010 civilian strategic workforce plan. The plan
stated that the goal was to optimize the department’s workforce mix to
maintain readiness and operational capability, ensure inherently
governmental positions were performed by government employees, and
construct the workforce in an effective, cost efficient manner. In addition,
OUSD (P&R) officials noted that they had convened an in-sourcing
“community of interest” in 2009 to prepare DOD’s functional communities
for the fiscal year 2010 in-sourcing efforts, and briefed DOD component
functional community managers on the in-sourcing process. OUSD (P&R)
officials responsible for strategic workforce planning and the report on
fiscal year 2010 in-sourcing actions told us, however, that they had not
established metrics to measure progress toward the stated goal of the in-
sourcing effort, and acknowledged that it would be difficult to measure
such progress from the available data.

Further, DOD officials indicated that because DOD uses different
identifiers for workforce planning efforts than it does to track in-sourcing
actions, DOD does not have the ability to correlate the underlying data.
For example, DOD’s most recent strategic workforce plans used
occupational series codes—representing occupations such as budget
analyst (0560) or civil engineer (0810)—while the in-sourcing report used
function codes, which describe a broad area of work such as logistics or
intelligence. 38 DOD officials told us there is no crosswalk between
occupational series and function codes, and one occupational series can
be found in many different function codes—for example, a budget analyst
could work in logistics or professional military education, among other


37
  GAO, Human Capital: Key Principles for Effective Strategic Workforce Planning,
GAO-04-39 (Washington, D.C.: Dec. 11, 2003) and Workforce Planning: Interior, EPA,
and the Forest Service Should Strengthen Linkages to Their Strategic Plans and Improve
Evaluation, GAO-10-413 (Washington, D.C.: Mar. 31, 2010).
38
   DOD, Strategic Civilian Human Capital Plan (SCHCP) 2006-2010, Fiscal Year 2009
status report (Mar. 31, 2010), and DOD Strategic Human Capital Plan Update, The
Defense Acquisition Workforce (April 2010).




Page 20                                             GAO-12-319 DOD In-sourcing Report
              functions. Though they were not published in the report to Congress, the
              data military departments reported to OUSD (P&R) included occupational
              series, but those data are limited in the extent to which they can be used
              to measure progress against the strategic workforce plans. For example,
              the non-acquisition workforce plans did not contain specific workforce
              targets for in-sourcing. Similarly, the acquisition workforce plan did not
              contain workforce targets by occupational series, but instead outlined
              targets for increasing acquisition career fields, which consist of many,
              overlapping occupational series. For example, four different career
              fields—including the “test and evaluation” and “production, quality &
              manufacturing” career fields—contain the general engineer (0801)
              occupation. Thus, the data components provided to OUSD (P&R) for the
              in-sourcing report also could not be used to compare with the in-sourcing
              targets contained in the acquisition community workforce plan.

              DOD officials stated that they believe the department’s fiscal year 2010
              in-sourcing actions were consistent with the broad goals outlined in their
              2010 workforce plans, and had the effect of freeing up funds for higher-
              priority areas because of cost efficiencies, and of reducing risks
              associated with contractors performing inherently governmental or closely
              associated with inherently governmental functions. However, without
              greater alignment between the in-sourcing data and strategic workforce
              plans, decision makers in DOD and Congress have limited information
              about the extent to which in-sourcing actions furthered the department’s
              strategic workforce goals.


              In-sourcing is one tool DOD can use to balance its workforce mix among
Conclusions   DOD civilians, military personnel, and contractors to help ensure it has
              the right balance of in-house capabilities to perform its mission and
              reduce the risk of over-reliance on its contractor workforce. DOD stated in
              its September 2011 report to Congress that its fiscal year 2010 in-
              sourcing decisions helped the department achieve these objectives. DOD
              reported on its fiscal year 2010 in-sourcing actions as Congress required,
              listing the creation of nearly 17,000 new civilian authorizations as a result
              of in-sourcing by DOD components. The report also listed the DOD
              component taking the in-sourcing action and the basis and rationale for
              each action. However, DOD and the military departments took only
              limited steps to ensure that the report data, such as the number of new in-
              sourcing authorizations in each command and the stated rationale for the
              actions, were reliable. In some instances, we found the data submitted by
              the major commands to be inaccurate due to insufficient mechanisms for
              validating the reliability of the data. Without greater assurance of data


              Page 21                                       GAO-12-319 DOD In-sourcing Report
                      reliability, the report itself, as well as any data DOD may continue to
                      collect on its ongoing in-sourcing actions in the future, may have limited
                      utility as a tool to facilitate oversight by decision makers in both DOD and
                      Congress. Likewise, the data collected on in-sourcing could not be used
                      to measure progress toward the department’s overall goal for its in-
                      sourcing initiative according to its strategic workforce plans. The lack of
                      alignment between strategic-level workforce plans and the fiscal year
                      2010 in-sourcing data and the lack of metrics to measure progress
                      against strategic workforce objectives limits decision makers’ insight into
                      the extent to which in-sourcing in fiscal year 2010 strengthened the DOD
                      workforce in key areas.


                      To address these issues, we recommend that the Secretary of Defense
Recommendations for   take the following two actions:
Executive Action
                      To enhance insights into and facilitate oversight of the department’s in-
                      sourcing efforts, we recommend that the Secretary of Defense direct the
                      Under Secretary of Defense for Personnel and Readiness to issue
                      guidance to DOD components requiring that the components establish a
                      process to help ensure the accuracy of any data collected on future in-
                      sourcing decisions.

                      To improve DOD’s strategic workforce planning, we recommend that the
                      Secretary of Defense direct the Under Secretary of Defense for Personnel
                      and Readiness to better align the data collected on in-sourcing with the
                      department’s strategic workforce plans and establish metrics with which
                      to measure progress in meeting any in-sourcing goals.


                      In commenting on a draft of this report, DOD partially concurred with our
Agency Comments       two recommendations. DOD’s comments are reprinted in appendix III.
and Our Evaluation
                      In written comments, DOD stated that there was nothing technically
                      incorrect with our statements and findings. DOD noted that in-sourcing is
                      one of many tools managers can use to shape the department’s
                      workforce, and has enabled managers throughout the department to
                      enhance internal capabilities, regain control and oversight of mission-
                      critical functions, mitigate risks associated with over-reliance on
                      contracted services, and generate efficiencies through resource
                      realignment. DOD also stated, however, that the department was
                      concerned that the challenges and problems identified in our report were
                      not solely unique or attributable to in-sourcing, and that a lack of



                      Page 22                                       GAO-12-319 DOD In-sourcing Report
clarification on this point might unfairly cast unwarranted criticism on the
use of in-sourcing as a tool available to government managers. We
agree, and have noted in our report that the need for reliable data is not
unique to in-sourcing decisions. However, while the challenges identified
in our report regarding data reliability and alignment of reported data with
strategic workforce plans may not be unique to in-sourcing, they can pose
problems for evaluating the effects of in-sourcing as a tool for workforce
management.

DOD partially concurred with our first recommendation, to require
components to establish a process to ensure the accuracy of in-sourcing
data collected going forward. DOD stated that the challenges to data
accuracy identified in our report are not unique to manpower
requirements and billets established as a result of in-sourcing contracted
services, adding that because the challenges are not unique to in-
sourcing, they should not call into question the fundamental value and
efficacy of in-sourcing. Our report does not call the value of in-sourcing
into question. However, we believe that despite challenges to the
accuracy of DOD data in other areas, reliable data on in-sourcing are
necessary for oversight by decision makers in DOD and Congress. The
department also noted that because time-sensitive in-sourcing decisions
must often be made at the command or installation level, any certification
and validation process should occur at that level. We agree and, as we
stated in our recommendation, believe that the department should require
that components establish a process to help ensure the accuracy of in-
sourcing data, which does not preclude certification and validation by
commands or installations.

DOD also partially concurred with our second recommendation, to better
align the data collected on in-sourcing with the department’s strategic
workforce plans and establish metrics with which to measure progress in
meeting any in-sourcing goals. The department stated that it has worked
to align in-sourcing and strategic workforce planning efforts and that in-
sourcing is one of many tools available to help close competency gaps
and meet strategic workforce planning goals. However, the department
further stated that in-sourcing should not be limited to areas identified in
strategic workforce plans. We do not suggest in our report that in-
sourcing should be limited to areas identified in strategic workforce plans,
but believe that the effect that in-sourcing has in helping to achieve
strategic workforce goals should be identified and reported as part of the
oversight of the department’s strategic workforce management. DOD
further stated that objectively measuring in-sourcing outcomes with
traditional workload or personnel metrics is challenging because of



Page 23                                       GAO-12-319 DOD In-sourcing Report
unique, location-specific conditions related to missions, functions, and
operating environments. In that regard, as we state in our report, DOD
officials acknowledged that they had not established metrics to measure
progress against the in-sourcing goal in the department’s most recent
strategic workforce plan and that it would be difficult to use the available
data to assess such progress. However, as our prior work has noted, a
key principle of strategic workforce planning is monitoring and evaluating
progress toward human capital goals. 39 We note that without any metrics
and measurements indicating the extent to which in-sourcing helped the
department make progress toward strategic workforce goals, decision
makers in DOD and Congress will be unable to assess the effect of the
department’s in-sourcing actions in comparison with other actions it may
take to manage the size and composition of the total workforce.

We are sending copies of this report to appropriate congressional
committees, the Secretary of Defense, and other interested parties. In
addition, the report will be available at no charge on the GAO website at
http://www.gao.gov.

If you or your staff have any questions concerning this report, please
contact us at (202) 512-3604 or farrellb@gao.gov, or (202) 512-4841 or
martinb@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this report.
Key contributors to this report are listed in appendix IV.




Brenda S. Farrell
Director, Defense Capabilities and Management




Belva M. Martin
Director, Acquisition and Sourcing Management



39
     GAO-04-39.




Page 24                                       GAO-12-319 DOD In-sourcing Report
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 Howard “Buck” McKeon
Chairman
The Honorable Adam Smith
Ranking Member
Committee on Armed Services
House of Representatives

The Honorable C.W. Bill Young
Chairman
The Honorable Norman D. Dicks
Ranking Member
Subcommittee on Defense
Committee on Appropriations
House of Representatives




Page 25                              GAO-12-319 DOD In-sourcing Report
Appendix I: Scope and Methodology
             Appendix I: Scope and Methodology




             To evaluate the extent to which the Department of Defense (DOD)
             reported on the items required by section 323 of the National Defense
             Authorization Act (NDAA) for Fiscal Year 2011, we reviewed DOD’s
             report on its fiscal year 2010 in-sourcing actions and compared it with the
             items specifically required by the legislation. Specifically, we ascertained
             the extent to which DOD reported on: (1) the agency or service of the
             department involved in the decision, (2) the basis and rationale for the
             decision, and (3) the number of contractor employees whose functions
             were converted to performance by DOD civilians. To better understand
             the data DOD reported, we reviewed DOD guidance on the in-sourcing
             decision-making process as well as statutes and regulations relating to in-
             sourcing, and met with officials of the Office of the Under Secretary of
             Defense for Personnel and Readiness (OUSD (P&R)) responsible for
             preparing the report, as well as officials in the departments of the Army,
             Navy, and Air Force responsible for submitting data for the report to
             OUSD (P&R). We focused our work on the military departments because
             together they constituted the majority of in-sourcing actions in fiscal year
             2010. We analyzed the data contained in the report to identify patterns in
             the in-sourcing actions of the military departments, and met with
             representatives of each military department and the selected major
             commands to identify the reasons for those patterns. We used these data
             to portray the distribution of in-sourcing actions across the military
             departments and other DOD agencies, as well as the distribution of in-
             sourcing rationales in the military services and within certain major
             commands. For the purposes of this review, we selected a non-probability
             sample of commands from each military service, which included at a
             minimum the largest two commands in each service by volume of in-
             sourcing actions in fiscal year 2010. The sample of commands is not
             generalizable to all military department major commands.

             To determine the process DOD used to prepare the report and the extent
             to which the department assured itself of the reliability of the data, we
             reviewed our prior work on standards for internal control in the federal
             government. 1 We also reviewed DOD guidance on the in-sourcing
             decision process. We analyzed the data contained in DOD’s report to
             identify patterns in the in-sourcing actions of the military departments, and
             met with officials of OUSD (P&R) in charge of preparing the report, as



             1
              GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1
             (Washington, D.C.: November 1999).




             Page 26                                            GAO-12-319 DOD In-sourcing Report
Appendix I: Scope and Methodology




well as officials in the three military departments responsible for
submitting in-sourcing data to OUSD (P&R), to identify the reasons for
those patterns. As previously noted, we focused our work on the military
departments because together they constituted the majority of in-sourcing
actions in fiscal year 2010. We obtained and reviewed the in-sourcing
data submitted by the military departments, and compared these data to
the data in the report submitted to Congress. We also met with select
major commands to determine their processes for assuring the reliability
of the data they generated on in-sourcing actions, as well as certain other
major commands with significant in-sourcing actions. We did not
independently verify the data submitted for use in the report. We used
these data to portray the distribution of in-sourcing actions across the
military departments and other DOD agencies, as well as the distribution
of in-sourcing rationales in the military services and within certain major
commands. Although we found problems with some of the command-
level data and are making a recommendation to this effect, we found the
data to be sufficiently reliable for the purposes of providing broad
percentages about in-sourcing actions.

To determine the extent to which DOD’s fiscal year 2010 in-sourcing
actions were aligned with the department’s recent strategic workforce
plans, we reviewed our and the Office of Personnel Management’s prior
work on strategic workforce planning. We compared the data in the report
on fiscal year 2010 in-sourcing actions and in-sourcing data submitted by
the three military departments with the department’s most recent strategic
workforce plans (specifically, the 2009 update to the 2006-2010 strategic
workforce plans). We also interviewed officials in OUSD (P&R)
responsible for preparing both the in-sourcing report and the strategic
workforce plans, and officials in the Office of the Under Secretary of
Defense for Acquisition, Technology, and Logistics’ Office of Human
Capital Initiatives responsible for the acquisition community’s strategic
workforce plans.

DOD organizations we contacted during audit work included the following:

In the Office of the Secretary of Defense:

•   Office of the Under Secretary of Defense (Personnel & Readiness)
•   Office of the Under Secretary of Defense (Comptroller)
•   Office of the Under Secretary of Defense (Acquisition, Technology,
    and Logistics)




Page 27                                      GAO-12-319 DOD In-sourcing Report
Appendix I: Scope and Methodology




In the Department of the Air Force:

•   Office of the Assistant Secretary of the Air Force (Manpower &
    Reserve Affairs)
•   Headquarters Air Force
•   Air Force Materiel Command

In the Department of the Army:

•   Office of the Assistant Secretary of the Army (Manpower & Reserve
    Affairs)
•   Army Installation Management Command
•   Army Medical Command

In the Department of the Navy:

•   Office of the Assistant Secretary of the Navy (Manpower & Reserve
    Affairs)
•   Office of the Chief of Naval Operations
•   Headquarters Marine Corps
•   Navy Fleet Forces Command
•   Naval Sea Systems Command
•   Space and Naval Warfare Systems Command
•   Marine Corps Systems Command

We conducted this performance audit from May 2011 to February 2012 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.




Page 28                                     GAO-12-319 DOD In-sourcing Report
Appendix II: DOD Cost Estimating Guidance
                           Appendix II: DOD Cost Estimating Guidance
                           and Cost Estimate Data Collection



and Cost Estimate Data Collection

                           While section 323 of the FY11 NDAA did not require DOD to report cost
                           data on in-sourcing and DOD’s September 2011 report to Congress did
                           not include any cost-related information, DOD issued guidance to
                           components on the methodology to use when making cost-based in-
                           sourcing decisions, 1 and the military departments collected and reported
                           estimated cost information on their respective in-sourcing actions to
                           varying degrees.


Guidance on In-sourcing    DOD’s May 2009 in-sourcing guidance requires DOD components, in the
Cost Estimates             case of work which is not determined to be inherently governmental or
                           exempt from private sector performance and which can be performed by
                           DOD civilians, to conduct a cost analysis to determine whether DOD
                           civilian employees or the private sector would be the most cost-effective
                           provider. In January 2010, DOD issued guidance on the methodology
                           components should use to estimate the costs of in-sourcing actions when
                           making cost-based in-sourcing decisions. Officials in the military
                           departments told us that although the guidance was officially released in
                           January 2010, the costing rules were available previously and so were
                           used throughout fiscal year 2010.


Collecting and Reporting   We found that the military departments took different approaches to
Cost Data                  collecting and reporting cost-related data associated with their fiscal year
                           2010 in-sourcing decisions. Specifically, the Air Force collected and
                           reported cost estimate data for each in-sourcing action—including cost-
                           based, inherently governmental, and exempt functions—to OUSD (P&R).
                           The Department of the Navy collected and reported cost estimate data to
                           OUSD (P&R) for most cost-based in-sourcing actions and some actions
                           that were not cost-based. Specifically, the Navy reported cost estimate
                           data on some, but not all, in-sourcing actions for functions that were
                           deemed inherently governmental or exempt from private sector




                           1
                             DOD, Directive-Type Memorandum (DTM) 09-007, “Estimating and Comparing the Full
                           Costs of Civilian and Military Manpower and Contract Support” (Jan. 29, 2010, updated
                           Oct. 21, 2010).




                           Page 29                                             GAO-12-319 DOD In-sourcing Report
Appendix II: DOD Cost Estimating Guidance
and Cost Estimate Data Collection




performance. The Army did not report any estimated cost data for in-
sourcing decisions to OUSD (P&R). 2




2
 As noted previously, the Air Force’s new in-sourcing authorizations were 95 percent cost
based, while the Department of the Navy’s were 54 percent cost based (including the
Marine Corps, which in-sourced 100 percent for cost reasons), and the Army’s were 13
percent cost based.




Page 30                                               GAO-12-319 DOD In-sourcing Report
Appendix III: Comments from the
              Appendix III: Comments from the Department
              of Defense



Department of Defense




              Page 31                                      GAO-12-319 DOD In-sourcing Report
Appendix III: Comments from the Department
of Defense




Page 32                                      GAO-12-319 DOD In-sourcing Report
Appendix III: Comments from the Department
of Defense




Page 33                                      GAO-12-319 DOD In-sourcing Report
Appendix IV: GAO Contacts and Staff
                  Appendix IV: GAO Contacts and Staff
                  Acknowledgments



Acknowledgments

                  Brenda S. Farrell, (202) 512-3604 or farrellb@gao.gov.
GAO Contacts
                  Belva M. Martin, (202) 512-4841 or martinb@gao.gov.


                  In addition to the contacts named above, key contributors to this report
Staff             were Marion Gatling, Assistant Director; Randy DeLeon; Tim DiNapoli,
Acknowledgments   Simon Hirschfeld; John Krump; Ramzi Nemo; Terry Richardson; and Erik
                  Wilkins-McKee.




(351611)
                  Page 34                                     GAO-12-319 DOD In-sourcing Report
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