C;nited States General Accounting Office Report to the Chairman? Subcommittee GAO on Federal Services, Post Office, and Civil Service, Committee on Governmental Affairs, U.S. Senate March 1990 OMB CIRCULAR A-76 DOD’s Reported Savings Figures Are Incomplete and Inaccurate EEsTBI(=TED --No% to be relea&d&t$ide the Generzsl Aeeounting Office anless tsptic&- appmved bythe Off&e of Cmgressimal Relations. GAO/GGD-90-58 united states General Accounting Office Washington, D.C. 20648 General Government Division B-234046 March 15,199O The Honorable David Pryor Chairman, Subcommittee on Federal Services,Post Office, and Civil Service Committee on Governmental Affairs United States Senate Dear Mr. Chairman: This report responds in part to your request that we evaluate federal agency implementation of the Office of Managementand Budget (OMB) Circular A-76, “Performance of Commercial Activities.” A principal pur- pose of OMB’S A-76 program is to achieve economy in government operations. As agreed, we focused on the savings the Department of Defense(DOD) attributes to its A-76 efforts. As part of our evaluation, we assessedthe (1) accuracy of A-76 savings data reported to OMBand (2) availability of A-76 administrative cost information. Although our work was limited to DOD's cost and savings data, it provides an insight into the accuracy of OMB’S reported aggregatesavings in government operations achieved by the A-76 program becausemost of the reported A-76 savings were made by DOD. A more detailed discussion of our objectives, scope,and method- ology appears in appendix II. Other aspectsof your request have been addressedin our previous reports.’ OMBCircular A-76 applies to federal agencies’commercial activities- functions such as custodial services,data processing,and vehicle main- tenance. (Inherently governmental functions-those intimately related to the public interest-must continue to be done by federal employees.) Commercial activities are to be studied to determine whether they could be done more economically by nonfederal sources-contractors-or by government employees. The first step in an A-76 cost study involves the agency precisely defin- ing the performance standards of the work it is doing and expects to do in the future. Page 1 GAO/GGD~OMB-A-76 B-224046 As part of the A-76 study, the agency does a managementreview to determine how the in-house workforce should be organized and equipped to most efficiently accomplish the performance standards. The agency next determines how much it would cost to operate according to the revised in-house organization. This cost is the in-house bid to accom- plish the work. The agency also solicits contractors’ bids for the work to be done. When all bids are received, the agency comparesthe in-house bid to the con- tractors’ bids. In general, the agency is to award a contract to the lowest bidder whom the agencyjudges to be able to meet all the standards. In instances where there are no qualified contractor bids or the contractor bids exceedthe in-house bid, the activity will be kept in-house to be done by government employees,who are to implement the revised in- house organization within 6 months of winning the bid. Agencies are required to report to OMBquarterly the status of their A-76 studies. Estimated savings figures for completed studies are reported annually. Agencies are to calculate annual savings from each study by subtracting the anticipated new cost of the activity (based on the win- ning bid) from the estimated original cost to operate the function. Sav- ings figures, therefore, are projections and are not basedon actual experience. To track A-76 studies on a boBwide basis, DOD’S A-76 office usesa com- puterized data base.Installations provide required data to their compo- nent headquarters, who report the information quarterly to the Defense Manpower Data Center (DMDC). DMDC compiles reports and other infor- mation, including data reports for OMB. Results in Brief According to OMB,annual A-76 savings for fiscal year 1988 totaled over $133 million. More than 80 percentof these reported governmentwide savings are attributable to DOD. However, our evaluation of DOD'S sav- ings data shows that OMB’S figures do not accurately reflect the extent to which economy in government operations is being achieved.Specifically: . DOD estimates expected cost savings from individual studies on the basis of standardized assumptions, not on the best available cost data. . DOD doesnot routinely collect and analyze cost information to monitor actual operations after a cost study has been made. . The computerized data basethat DOD usesto accumulate information on expected cost savings contains inaccurate and incomplete information. . Page 2 GAO/GGD(KM(IOMBcircularA-76 l DOD'S automated system miscalculates total annual expected cost savings. l DOD'S system does not contain reliable information on the cost of imple- menting DOD'S A-76 program, including the cost of doing the studies. Therefore, neither DOD nor OMBhas reliable information on which to assessthe soundnessof savings estimates or knows the extent to which expected savings are realized. Complete and accurate savings information would help to reduce some of the controversy surrounding the A-76 program. As discussedin our previous reports, agenciesare not embracing the program and Congress has legislatively prohibited A-76 cost studies of certain functions. There is no unanimity that the A-76 program is the appropriate way to get governmentwide efficiencies. The processis characterized as burden- someand time-consuming, agenciessay the goals assignedthem by OMB are unrealistic, and Congresshas not fully acceptedthe program. Principal Findings Origin ~1 f%usr~fir K&A “pLc&,dg costs Projected cost savings from individual A-76 studies are estimated cen- A- n 1WC uetermined by trally by DOD'S A-76 office. Rather than basing savings on original oper- ating costs as estimated by the installation doing the study, DOD'S A-76 1Formula office uses a formula to compute savings. DOD'S formula assumesthat nonpersonnel costs vary directly with the number of people working in an activity, an assumption that is not valid for sometypes of costs, such as materials for housing repairs. In general, the cost of repair materials would be determined by the amount of repair material required, not by the number of people working on the repair. DOD A-76 officials said they use the formula becausenot all accounting systems at military installations can identify the actual operating costs of individual activities of that installation. OMB A-76 officials do not sup- port the use of a formula by DOD'S A-76 office and said that installations could, from existing information, prepare a reasonably accurate esti- mate of original costs.Service officials said service headquarters could assumeresponsibility for reporting original activity costs,on the basis of available information from installations. They said they did not want to add another requirement on the already burdened installations’ A-76 offices. Page 3 GAO/GGDM OMB Circular A-76 - B234046 DOD Lacks Information on DODdoes not know the extent to which the actual costs incurred after a cost study is completed differ from anticipated costs becauseit doesnot Modifications Made After analyze the information the reporting system collects, and the system the Cost Study doesnot collect sufficient information. Sometimes,contracts are modi- fied, contract administration costs are higher than originally estimated, or in-house reorganizations do not occur as planned. Without adequate information for post-study analysis, however, DODcannot determine the extent to which projected savings are realized nor detect cost-growth problems in functions that have been studied. Adequate post-study analysis requires the collection of at least three types of information that DODdoesnot now have. . Detailed information on contract cost increases:DODnow collects only the information on total (annual) amounts paid to contractors. Informa- tion on the reasonsfor cost increases,and related dollar amounts, is not collected. Such data could be used to identify the extent of problems, such as errors or omissions in work statements. . Estimated contract administration staffing: A comparison of staffing estimated at the time of contracting out and actual staffing would show the extent to which a changefrom the estimated staffing level has affected projected savings. DODplans to collect information on actual staffing, but not on the estimated (baseline) staffing. . Revised in-house organization actual costs:DOD’S A-76 office doesnot collect any information about the implementation of the revised in- house organization, including whether it is saving as much money as projected. Although DODdoesnot collect this information, OMBrequire- ments state that all agenciesshould. DOD’s A-76 Data Base DOD’S A-76 savings reports for fiscal years 1986 through 1988 did not Contains Inaccuracies and include about 13 percent of the studies it completed in those years. Some studies were excluded becausea DODreporting instruction directed that Incomplete Savings- if there were no qualified contractor bids, an installation should not Related Data report its in-house bid. Therefore, data that DODwould need to calculate the savings resulting from implementation of the revised in-house organization were not available. DODofficials speculated that these cost data involved what could be consideredto be proprietary information that could not be disclosed.However, they acknowledged that such pro- tection is not neededoncethe period for any appeals and protests has passed.DODexcluded other studies from its totals becausecost-related data required to be reported to DODwere missing or inconsistent. The two types of excluded studies involved a total of more than $36 million Page 4 GAO/GGIMM6 OMB CireoLarA-76 in annual (recurring) savings from studies completed in fiscal years 1986 through 1988. One reason for not detecting the missing or inconsistent data-as well as for problems found with data that are not cost related-is flawed com- puterized edit checks and error correction proceduresof the DOD A-76 reporting system. The system lacks comprehensiveedit checksat the points where data are initially entered into computerized systems,and errors in the data base are not corrected in a timely manner. A majority of the suspectederrors that DOD identified recently in its data basewere for studies completed at least a year earlier-studies that DOD had, or should have, already included in its annual savings calculations. These, therefore, affected the annual savings figures reported to OMB. Special Computer Progw n The total annual A-76 savings figures we calculated by adding the sav- Miscalculates Reported ings from individual DUD cost studies did not match the figures produced by a special computer program that DoD developedto generate its total Total Annual Savings annual savings figures. One phase of this computer program miscalcu- lates the savings figures. The averageyearly miscalculation for fiscal years 1986 through 1988 was more than $2 million each year. (For 2 of the years DOD'S program produced lower savings figures, and for 1 year it produced a higher figure.) DOD had no compelling reason for using that phase of the computer program. Moreover, if DOD continues to use that phase of the program, OMB and DOD will have different annual savings figures, becauseOMBplans to compute its own annual figures by sum- ming individual study savings reported to it. Lack of Information on Neither DOD nor OMB had much information on the cost of administration A-76 Program Costs of the A-76 program. The overall cost of the program, including doing the studies, has been estimated by the Deputy Assistant Secretary of Defensefor Installations at between $150 million and $300 million per year. None of these costs, such as those incurred in doing the studies, are considered in estimating savings. The costs of administering the A-76 program have been a congressionalconcern. For example, discus- sions of DOD’S appropriation for fiscal year 1990 have focused on the costs of DOD’S A-76 program. DOD requires itscomponentsto report staff hours expended to do indi- vidual studies. However, we found that most of the data are not being Page5 GAO/GGIMBO-5gOlKEclrcularA-76 reported or do not appear to be reasonable,and DOD plans to stop collect- ing the information. OMB doesnot require agenciesto collect this infor- mation. OMB believes that routinely collecting information on the cost of the A-76 program is not appropriate becausethe A-76 program is aimed at achieving managementefficiencies, which is what all government managers should be doing. While we believe that information on study costs could be useful for getting a clearer picture of the costs and bene- fits from the A-76 program, OMB, DOD, and service officials noted diffi- culties in getting installations to report reliable information, A-76 Program Remains According to OMB, the A-76 program has been achieving economy in gov- Controversial ernment operations. The President’s report, Managementof the United States Government, Fiscal Year 1990, stated that annual A-76 savings in fiscal year 1988 totaled over $133 million. More than 80 percent of these reported savings were from DOD’S A-76 studies. In 1988 and 1989 reports2and testimony,3 we discussedcontroversies surrounding the A-76 program. Proponents believe it can achieve sub- stantial savings and improve government productivity. Others are con- cerned about its potential effect on the anxious employeeswho spend time looking for new jobs and on federal managerswho are left to accomplish essential functions with fewer workers. Moreover, there is no unanimity that the A-76 program is the appropriate way to get governmentwide efficiencies because(1) the processis characterized as burdensomeand time-consuming, (2) agenciessay the goals assigned them by OMBare unrealistic, and (3) Congresshas not fully acceptedthe program. In turn, agenciesare not embracing the program, and Congress has legislatively prohibited A-76 cost studies of certain functions. Con- gress also has been concernedabout the costs to administer the program. In our opinion, accurate and complete program data would help resolve someof the controversy and stimulate more informed debate on the issue by providing clearer insight into the costs and benefits of federal agencies’efforts. ‘Federal Productivity: DOD’sExperiencein C+tr Out Gxnmercially Available Activities (GAO/GGD89-6), NOV.28,19&B;and Managmg‘l??%ernment: RevisedApproachCould Improve OMEVs Effectiveness(GAO/GGD-89-66),May 4, 19:9. 3Statementof GeneL. Dodaro,beforethe President’sCommissionon Privatization (GAO-T- GGD-88-7,Jan. 7,1988). Page 6 GAO/GGD9068 OME Circular A-76 Conclusions which the A-76 program is meeting the objective of achieving economy in government operations. Estimates of annual recurring savings have been reported, and program costs have also been estimated. However, neither the reported savings figures nor cost estimates are supported by complete and accurate data. Accordingly, someof the controversy sur- rounding the A-76 program is understandable-Congress questions whether projected savings are real, and agenciesare not sure of the ben- efits of implementing the program. A number of factors contribute to the inaccuracy of DOD'S savings esti- mates. DOD estimates expected cost savings from individual studies on the basis of standardized assumptions,not on the best available cost data. Further, DOD'S A-76 office doesnot routinely collect and analyze cost information to monitor actual operations after a cost study has been made, nor doesit assessthe extent to which actual post-study costs differ from anticipated costs.Also, DOD'S instructions for its A-76 report- ing system causenonreporting of someneededdata. Moreover, that sys- tem lacks comprehensiveedit checks at the points where data are initially entered into computerized systems.As a result, data reported by DOD services are often incomplete or inconsistent. Those errors also are not being corrected in a timely manner. Further, DOD'S program used to calculate total annual savings miscalculates the reported savings figures. We believe DOD can correct each of these problems. Regarding the costs of administering the A-76 program, neither DOD nor OMB has much information. Such information, together with complete and accurate savings data, could present a more comprehensivepicture of program costs and benefits and help to determine the most cost- effective use of resources.However, A-76 program officials at OMB,DOD, and the services believe that there are difficulties in obtaining reliable information from installations on the hours expended in doing A-76 studies, and DOD plans to stop collecting this information. In general, these officials believe the relative costs would outweigh the benefits of collecting program cost information. Moreover, OMB officials believe that doing reviews to determine the most efficient way to accomplish opera- tions is a management responsibility that should be carried out routinely and thus should not be counted as a cost against A-76 savings. We recognizethat obtaining reliable information on A-76 administrative costs may be difficult. Not all military accounting systems automatically provide such information, and staff time and effort would be neededto Page 7 GAO/GGD8O-58 OMB CircnLar A-76 develop it. Even so, we believe more needsto be done to measureA-76 administrative costs given the following: The contentious differences between proponents and opponents of A-76 programs can affect program implementation. Neither proponents nor opponents have hard data to support their positions. Reliable data could help resolve the controversy and stimulate more informed debate on the costs and benefits of A-76. Congressionalfocus on A-76 administrative costs is increasing. As a first step, DODshould design and pilot test an approach for reliably measuring its A-76 administrative costs.On the basis of the pilot-test information-the costs versus the benefits-oMB should be in a position to accurately determine the level of A-76 administrative costs and whether it would be worthwhile to collect these costs governmentwide. To improve DOD'S oversight of its A-76 program and the reliability of Recommendations A-76 program savings reported by DOD,we recommendthat the Secre- tary of Defensetake the following actions: l Make DODcomponentsresponsible for estimating the original cost of activities being studied, using standardized budgetary and actual cost information, rather than using a formula to calculate this, and use these cost figures in computing and reporting savings. l Improve DOD’S ability to analyze cost changesthat occur after cost stud- ies are completed by requiring DOD'S A-76 office to collect information on (1) reasonsfor contract cost changesand related dollar amounts, (2) estimated contract administration costs (baseline costs), and (3) revised in-house organization costs (activity costs after the revised in-house organization is implemented). . Report to OMB actual costs for revised in-house organizations, as required. . ChangeDOD reporting instructions to require reporting of the in-house organization bid for all completed cost studies. . Direct the Secretariesof the Air Force, Army, and Navy to ensure that there are comprehensiveedits on A-76 data at the point where they are initially entered into a computerized system, in order to reduce the number of errors in DOD'S A-76 data base. l Place increased emphasis on correcting data errors in the DOD A-76 data base as soon as they are found by error-identification programs. Page 6 GAO/GGLWO-SS OMB circular A-76 . Changethe procedure for calculating total A-76 savings for a fiscal year by summing savings acrossstudies. The portion of the computer pro- gram currently used to produce the annual estimated savings total should be deleted to avoid the possibility of errors in reported information. To help resolve the controversy surrounding the A-76 program, we rec- ommend that the Secretary of Defensedesign and pilot test an approach for reliably measuring A-76 program administration costs at DOD, with OMBmonitoring the progress of the effort. On the basis of the pilot test, OMBshould be in a position to accurately determine the level of A-76 administrative costs and whether it would be worthwhile to require their collection governmentwide. OMEI commentedon a draft of this report and generally agreed with our findings and concurred with our recommendations.It said it will moni- tor DOD’S progress in pilot testing an approach to reliably measuring A-76 administrative costs. However, OMBexpressedconcern about what it called the report’s “inference” that becauseDOD'S savings figures are suspect,the A-76 pro- gram may not be achieving economy in government operations. This was not our intent. We could not determine, from the available data, the impact the program has had or whether the reported economieswere overstated or understated. Thus, we have modified our report’s lan- guageto minim& the possibility that readers would draw other infer- ences.Cur principal messageis that accurate A-76 savings figures are neededto address long-standing and growing congressionalconcerns about the A-76 program’s value and achievements.While we agreethat the program is appealing conceptually, as long as the data supporting its cost effectiveness are open to question, the program will continue to be vulnerable to doubts about its efficacy in practical application. OMBalso questioned whether our review, which was confined to DOD, has governmentwide applicability. We agreethat our review provides no indication whether the inaccuracies found in DOD'S data system exist in other agencies.However, becauseDOD was responsible for more than 80 percent of estimated governmentwide savings in fiscal year 1988, we believe that cleaning up its data basewill result in more complete and accurate estimates of governmentwide A-76 savings. We have modified the report to make this point more clearly. Page 9 GAO/GGD89.69OMB CircnLar A-76 B-234046 We requested written comments from DOD, but none were provided. However, we obtained the department’s views during an exit confer- ence, and these are reflected throughout the report. DOD officials gener- ally agreed with our recommendations.However, as discussedon page 17 of this report, they believe the responsibilities of the A-76 office end with a cost study’s completion and do not involve gathering further information. As arranged with the Subcommittee,unless you publicly announceits contents earlier, we plan no further distribution of this report until 30 days after its issue date. At that time, we will send copies to other appropriate congressionalcommittees and Members,the Secretary of Defense,and the Director of the Office of Managementand Budget. We will also send copies to other interested parties upon request. As agreed with the Subcommittee,we have also included as appendix IV a list of recent GAO reports that addressissuesrelated to this report. Major contributors to this report are listed in appendix V. Pleasecontact me at 275-8676 if you or your staff have any questions concerning the report. Sincerely yours, L. Nye Stevens Director, Government Business Operations Issues Page 10 GAO/GGlMO-KSOlKB Cii A-76 Page 11 GAO/GGDo(MB OMB circular A-76 Contents Letter 1 Appendix I 14 DOD’s Reported A-76 Original Operating CostsAre Determined by Formula DOD’sA-76 Office Lacks Information on Modifications 16 17 Savings Figures Are Made After the Cost Study Incomplete and DOD’sA-76 Data BaseContains Inaccuracies and 20 Inaccurate Incomplete Savings-RelatedData Special Computer Program Miscalculates Reported Total 23 Annual Savings Lack of Information on A-76 Program Costs 24 Appendix II 26 Objectives, Scope,and Methodology Appendix III 28 Comments From the Office of Management and Budget Appendix IV 30 Recent GAO Reports Addressing Related Issues Appendix V 32 Major Contributors to General Government Division, Washington, D.C. 32 Norfolk Regional Office 32 This Report Tables Table I. 1: Projected Recurring Savings Excluded by DOD 21 Reporting Instruction Table 1.2:Projected Recurring Savings Excluded Because 22 of Data Problems Table 1.3:Differences in Projected Recurring Savings- 24 Special Computer Program vs. Summing . Page 12 GAO/GGD-9049OME clrcnlu A-76 Table 1.4:Completed Studies Involving 1 to 10 Positions 25 Abbreviations AF+MEA Air Force ManagementEngineering Agency DMDC DefenseManpower Data Center DOD Department of Defense OMB Office of Managementand Budget OPM Office of PersonnelManagement Page!13 GAO/GGIM6-63 OMB fZXrdar A-76 Appendix I DOD’s Reported A-76 SavingsFigures Are Incompleteand Inaccurate ohmCircular A-76 applies to federal agencies’commercial activities, such as custodial services,data processing,and vehicle maintenance. The A-76 processrequires that agenciesidentify all activities being done by government workers that could be done by nonfederal sourcesand schedulethose activities for review. As the initial step in the actual A-76 cost study process,the agency must precisely define the performance standards (quality, timeliness, quantity) of the work it is doing and expects to do in the future. These standards are incorporated in a writ- ten document called the performance work statement. This work state- ment is the basis for developing both the in-house cost estimate and contractors’ bids. As part of the A-76 process,the agency does a managementstudy to determine how the in-house workforce should be organized and equipped to most efficiently accomplish the performance standards specified in the work statement. The in-house workforce’s most efficient organization is designedto enable the government workers to be more competitive with private sector contractors in bidding for the work. The agency next determines how much it would cost to operate according to the revised in-house organization. This cost becomesthe in-house bid to accomplish the commercial activity. The agency solicits contractors’ bids for the work to be done. When all bids are received, the agency comparesthe in-house bid to the contrac- tors’ bids. The agency awards a contract to the lowest-bidding contrac- tor who is judged by the agency to be able to meet all the government’s quality, timeliness, and quantity standards, provided that (1) the total cost of contract performance is lessthan the in-house bid, and (2) the margin of difference between the total cost of contract performance and the in-house bid exceeds10 percent of the personnel costsof the in- house bid. This lo-percent margin is included in the cost comparison to take into account such factors as temporary decreasein efficiency and effectiveness, the cost of retained grade and pay, and other unpredict- able risks that may occur as a result of the conversion to contract. The total cost of contract performance includes, in addition to the contrac- tor’s bid price, the government’s estimated costsof severancepay, relo eating and retraining the government’s workers, and administering the contract. If the conditions listed above are not met, the activity will be retained in-house and be done by government workers, who must implement the revised in-house organization within 6 months of winning the bid. Affected parties can fiie an appeal as a safeguard to help ensure that Page 14 GAO/GGIMO-M OM8 Circular A-76 Appendix I DOD%Beported A-76 Savinga F’l@uw Am Incomplete and Inaccumte the decision is equitable and in accordancewith A-76 procedures, Pro- jected savings from each cost study are computed by DOD’S A-76 office, which reports to OMB the projected savings from all its components’ cost studies. In January 1988, the Deputy Assistant Secretary of Defensefor Installa- tions testified that A-76 cost comparisons result in an averagesavings of 30 percent of the original cost of operations regardlessof whether the activity is retained in-house or contracted out. Savings are defined as the difference between the anticipated cost of the activities (basedon the winning bid) and the estimated original cost of the activities before the studies began. For A-76 studies completed in fiscal years 1986 through 1988, DOD reports showed average annual (recurring) savings of about $93 million. DOD’S experience with A-76 cost studies is the most extensive of all fed- eral agencies.DOD records show that from fiscal year 1984 through 1988, DOD completed cost comparisons covering about 40,000 employee positions.’ DOD uses a computerized data base to track and monitor these studies. Installations provide required data to component headquarters, which in turn report quarterly on the status of their A-76 studies to the DefenseManpower Data Center (DMDC). DMDC prepares reports and other output as requested by DOD A-76 officials, including data for OMB’S A-76 tracking system. We found that the savings figures DOD’S A-76 office reports to OMB are not accurate, and DOD’s A-76 office doesnot have a complete picture of A-76 efforts for the following reasons: l DOD’S A-76 office estimates savings from individual cost studies using a formula, rather than having the servicesproject the savings using installations’ known operating costs. . DOD’S A-76 office lacks information on modifications made to contracts or to the revised in-house organization after a cost-study decision has been made. . DOD’S A-76 data base contains inaccurate and incomplete information. . The computer program DOD usesto calculate total annual estimated A-76 savings miscalculates the savings figures. . DOD lacks information on A-76 program costs. ‘OMB reportedthat all other federal agencies’studiescovereda t&al of ahout 16,000positionsdur- ing this period. Page 15 GAO/GGIMO-56OMB Circular A-76 . Appendix I DOD3 Reported A-76Saving13Pigtuw Are Incomplete and Ixmumrate Projected annual (recurring) savings from individual A-76 cost studies Original Operating are estimated centrally by DOD’S A-76 office, using a formula, rather CoSti he Determined than by service headquarters or the installation doing the study, using by Formula standardized budgetary and actual cost information. DOD’S A-76 office projects savings from each cost study by subtracting the anticipated new cost of the activity (based on the winning bid) from the estimated original operating cost of the studied function. To do this, the A-76 office usesa formula to estimate the original operating costs of activities and usesthe estimated cost figures to compute the A-76 savings figures reported to OMB. DOD A-76 officials said that they use the formula becausenot all accounting systems at military installations can identify the actual operating costs of the individual activities being studied. OMB’S A-76 official said that original costs should be estimated by instal- lation officials who have much of the actual cost information rather than be calculated by DOD’s A-76 staff using a formula. Service officials said, however, that installations’ A-76 staffs already have too many responsibilities. They said that the services’ headquarters staffs could assumeresponsibility for reporting original activity costs. DOD’S formula for estimating the original cost of an activity is basedon the assumption that the operating cost per full-time employee to do that activity remains constant, regardlessof the number of people doing the work in-house after the reorganization. Specifically, to obtain its esti- mated original cost of the activity, DOD calculates the per-person cost of the revised in-house organization determined by the managementstudy and multiplies that cost by the number of people neededfor that activ- ity before the study began2 DOD’S formula implicitly assumesthat if the number of people staffing an activity decreases,then all coststhat are being bid on for that activ- ity-including materials and supplies, overhead, and equipment-also decreaseby the sameproportion. For certain types of costs (such as tele- phones or office supplies), this assumption may be valid. However, other types of costs, such as materials and supplies for housing repairs or the equipment costs of a computer center, are largely independent of the number of people who staff an activity. A DOD A-76 official said that validation of DOD’S formula was done someyears ago using a small sam- ple of activities, but he was unable to provide us with any documentation. 2Forexample,if the in-housebid is $600,000and proposesstaffing of 10 people,the per-personcost is $60,000.If 16 full-time peoplewere neededfor an activity beforethe study began,DOD’sformula would computethe estimatedoriginal costof the activity to be $SOO,OOO ($60,000x 16). Page 16 GAO/GGIMW5SOMB Circular A-76 Appendix I DOD’sReported A-76 Sa- Fignree Are Incomplete and Inaccwati OMB officialssaid that they do not agreethat DOD needsto use a formula to estimate original costs.They believe that installation officials doing a cost study can prepare a reasonably accurate estimate of the original operating cost of an activity on the basis of the installation management study and on actual personnel, travel, materials, and supplies budgets. Sufficient data to monitor A-76 savings projections are not being rou- DOD’s A-76 Office tinely collected. DOD’S reporting system collects only a few items of Lacks Information on information about performance of activities after the cost study decision Modifications Made has been made to contract out or keep the function in-house.Without an adequate monitoring and evaluation system in place, DOD does not know After the Cost Study the extent to which projected costs or savings were realized. DOD does not try to detect cost growth problems in activities after the studies have been completed, and neither DOD nor OMBhas a complete view of DOD’S A-76 program results. Projected savings do not reflect (1) modifi- cations to contracts that affect the fiial contract price, (2) differences between estimated and actual contract administration costs,or (3) modi- fications to the revised in-house organization when activities remain in- house. A DOD A-76 official said that his office doesnot attempt to evaluate the data it collects or determine the reasonsfor contract cost increases reported to it, becauseonce an A-76 study has been completed, the activities involved are no longer A-76 issuesand are therefore not within his area of responsibility. Similarly, DOD’S A-76 office does not want to collect additional information about the results of completed studies. We believe that DOD’S position on this issue renders DOD’S sav- ings figures questionable and prevents DOD from having a complete view of A-76 program results. Modifications to Contract Cost increasessometimes are due to errors or omissions in work state- Costs Not Analyzed ments or other parts of the contract. Contract modifications to correct such errors can causethe projected savings for a study not to be real- ized. We reported in November 19883that work statements were often incomplete or lacked the specificity of requirements and tasks needed by the in-house work force to estimate costs and to enable contractors to develop accurate bids. An Air Force survey completed in October 1988 of 11 larger studies completed in fiscal year 1986 found that of the 6 3Federalproductivity: DOD’sExperiencein contracting Out hnmercWy Available Activities C-M, Nov. 28, 19W. . Page 17 GAo/GGD9oM OMB Circuku A-76 DOD’s Reported A-76 Savinga F’i@uw Are Incomplete and Inacmrab studies won by contractors, contracts for 2 were terminated becauseof disagreementsabout the scopeof work defined by the contract. Another of the six studies resulted in higher-than-expected contractor payments (11 percent higher in fiscal year 1986,ZOpercent in 1987) for which the Air Force survey was unable to determine the reason. DOD’S A-76 reporting system collects only figures for the total contract costs for each of the first 3 years of each contract, and DOD reports these data to OMB’S A-76 office. Two of the military services have decided that they need additional information on contract cost changes.Officials at the Air Force Management Engineering Agency (AF’MEA) said that Air Force installations will, in the future, be required to report specific rea- sons for cost increasesof 10 percent or more. The Army now requires its installations to identify, by dollar amounts, the reasonsfor changesin contract costs for 5 years after a cost comparison final decision and is evaluating the extent to which it will ask for retroactive information about such cost changes. Estimated Contract In a cost comparison, an estimate for contract administration costs is Administration Costs Not added to the contractors’ bids. This is an additional cost to the govern- ment if a contractor wins the competition. OMB’S A-76 Cost Comparison Captured Handbook sets out authorized contract administration staffing levels, based on the number of employeesof the revised in-house organization. If the installation believes it will need more staff than specified by OMB standards, it must request a waiver from its headquarters organization. Contract administration costs can increase after a cost study has been completed. For example, the Army Audit Agency reported in 1983 that the average contract administration costs for 12 A-76 contracts it reviewed were more than double the estimates used in the cost compari- son. In a June 1989 report, the Army Audit Agency found that the con- tract administration costs for 10 contracted-out activities were about $2.3 million higher than originally estimated by the government. DOD’S A-76 office lacks the information to compare actual to estimated costs to determine if projected savings have been affected by a change from the estimated staffing level. The office plans to add, as a data ele- ment in its reporting system and data base,the number of personnel performing contract administration duties for each completed study won by a contractor. However, the office is not planning to include in its A-76 data base any information on the estimated staffing level used in Page 18 GAO/GGlMMhW3OMBCiiA-76 Appendix I DOD’sReported A-76Savings Pigurea Are Incomplete and Inaccurate the cost comparison. Without such baseline information, increasesin contract administration costs cannot be identified. Information on For in-house wins, problems have been reported with the implementa- Modifications to In.-House tion of revised in-house organizations. For example, in a 1984 report on 25 commercial activities that remained in-house,the Army Audit Staffing I-- -and Costs Not Agency found 8 activities for which the revised in-house organization Collected had not been implemented promptly or in the manner prescribed by the managementstudy. It reported that the costs of in-house operations were higher than projected. The Air Force survey completed in October 1988 (of 11 larger studies completed in fiscal year 1985) found that of the 5 installations with in-house wins, 1 had not implemented the revised in-house organization and 1 could not, except with considerable research, determine whether actual costs after the win were above, below, or the same as the winning in-house bid. The services have established different ways to monitor the implemen- tation of the revised in-house organization. A DOD Inspector General offi- cial told us that the Navy controls implementation through its budget, and the Air Force controls through billets or position staffing systems. The Army now requires, for in-house wins, that the installation report actual in-house organization costs and staffing for 5 years after the cost comparison final decision. Service officials told us that it can be difficult to track in-house activity costs over time becausean activity’s functions often do not remain constant. DOD's reporting system does not collect information (such as actual costs) about the implementation of revised in-house organizations. A DOD A-76 official said his office doesnot collect these costs becausethey do not consider events occurring after an A-76 study has been completed to be A-76 issues.However, becausethe OMBsupplement to Circular A-76 requires the revised in-house organization be implemented within 6 months of the cost-study decision, we believe collection of these data is appropriate under the A-76 program. DOD is not reporting required information on in-house costs to OMB. OMB'S A-76 tracking system is designedto collect revised in-house organization costs for three performance periods (up to 3 years) following the cost competition final decision. Becauseit doesnot collect the data, DOD can- not report the information to OMB. Page 19 GAO/GGDs(Ms OMB - A-76 DOD’s Reported A-76 !%I- pienres Are Incomplete and Inaccnmti computerized A-76 data baseis the source from which DOD pro- DOD’s A-76 Data Base DOD'S vides program information to OMB and to Congress.When we examined Contains Inaccuracies the data used to report savings,we found that DODexcluded about 13 and Incomplete percent of all studies completed in fiscal years 1986 through 1988 from its savings reports. These excluded studies represent at least $36 million Savings-RelatedData h annual (recurring) savings. DOD'S data base,with information as of December31, 1988, showed that 489 studies were completed during fiscal years 1986 through 1988. The DOD computer program used to calculate savings excluded 63 of these from its calculations. Of these 63, the program excluded 19 becauseof a problem causedby a DOD reporting instruction. The other 44 studies were excluded becausethe data base did not contain cost-related data neededto calculate savings, or it contained inconsistent data. In reviewing the cause of the missing and inconsistent data, we found that the computerized edit checks and error correction procedures of the DOD A-76 reporting system need improvement. Comprehensiveedit checks do not exist at the point where data are first entered into a com- puterized system- at the service level. Also, errors contained in DoD'S error identification listings are not being corrected in a timely manner. As a result, DOD'S reported savings continue to be inaccurate and remain uncorrected. DOD Reporting Instruction DOD'S instructions for reporting cost study information affects reported CausesNeeded savings figures. Included in DOD'S September 1986 A-76 reporting proce- dures (DOD14100.33) is an instruction that if no contractor bids are Information to Remain received during a cost study, or all bidders are disqualified, then the Unreported estimated cost of the revised in-house organization is not to be reported to DOD. DOD usesthis cost figure in the formula that calculates projected annual savings from a study. Nonreporting causesDODto exclude such studies from its calculation of total projected savings for the year, erro- neously reducing DOD’S total reported savings. DOD’S data base shows 19 of these studies were reported to DODas hav- ing been completed during fiscal years 1986 through 1988. To identify the effect of DOD’S reporting instruction, we calculated what DOD’S approximate savings estimates would have been for 18 of these 19 stud- ies (for 1 study, there were insufficient data to calculate savings). Table Pyre20 GAO/GGDgoM OMB - A-76 AppendLxI DOD% Jleported A-76 Savhign FIJJIUW Are Incomplete and Inaumrati I.1 shows approximately how much these studies would have changed DOD’S total projected savings4 Table 1.1: Projected Recurring Savings Excluded by DOD Reporting Instruction Fiscal vear Number of studies Excluded rwoiected savinas 1986 8 $1.7 million 1987 8 12.1 million 1988 2 2.0 million Total 18 $15.8 million DOD’s reporting instruction is inconsistent with OMB’S A-76 reporting pro- cedures,which do not provide any exception for the reporting of the cost of the revised in-house organization. DOD A-76 officials speculated that the information could be consideredproprietary and should there- fore be kept confidential. They agreed,however, that once the period for any appeals and protests has passed,such information can be dis- closed and should be reported. Other Errors With To compute savings figures, DOD’S computer program requires that Savings-Related Data installations report original (baseline) staffing for an activity, the bid (cost) and planned staffing for the revised in-house organization, and the cost of contracting out. If any of the neededdata are missing, or are inconsistent (for example, the in-house bid is reported as less than the contractor bid, yet the bid winner is identified-in another data field- as being the contractor), then the program excludes the study in ques- tion. For studies reported as completed in fiscal years 1986 through 1988, DOD’S computer program excluded 44 studies from DOD savings reports becauseof problems with missing data or inconsistent cost- related data. For 26 of these 44 studies, enough information was availa- ble in the data base for us to calculate a minimum approximate pro- jected savings from a study and thus approximate the effect of these data errors. Table I.2 shows what we were able to identify as additional unreported savings estimates. 4Themethodologyusedfor tables1.1and L2 is describedin appendix II. Page 21 GAO/GGD9oM) OMB circnlar A-76 Appendix I DOD'rhportedA-70Sa~FignreaAre incomplete and Inacmuate Table 1.2: Projected Recurring Saving8 Excluded Because of Data Problems Fiscal year Number of studies Excluded projected savings 1986 7 $15.5 million 1987 5 .5 million 1988 13 4.5 million Total 25 520.5 million Edit Checks and Error Installations initially report information in the data baseto their respec- Corrections Need tive service headquarters, which in turn report the information to DOD. Each service has created and maintains its own computerized A-76 data Improving base and management information system, containing both non-required data elements (such as the study announcement date) and service- unique data elements (for example, the date when development of the work statement began). Data reported to each service by the installa- tions are subject to various checks by the servicesto ensure accuracy and completeness.DMDC also prepares a quarterly feedback report that . lists suspectederrors. We identified two problems with the existing system. First, comprehen- sive edit checks (checking for all incorrect data entries) often do not exist where most data are fii<ntered into a computerized system-at the service level. As a result, when the data reach DOD headquarters level, large numbers of suspectederrors are being found. For example, the secondquarter 1989 feedback report listed 1,006 suspectederrors, such as an unreported cost comparison period or a missing or incorrect appeal result. Second,errors noted on DMDC’S error identification listings are not being corrected in a timely manner. We found 799 of the 1,006 suspected errors were for data involving 448 completed studies-most of which have been completed for more than a year. We noted that one service, with 662 completed studies in the data base, had only 26 suspected errors listed for those studies; another service, with 866 completed stud- ies, had 627 suspectederrors. Since OMB does not make retroactive changesto the cumulative savings figures it reports annually, the effects of untimely error correction include erroneous yearend savings reports to OMBand erroneous cumulative savings reports by OMB. Earlier in this report, we noted the extent of problems with data used to calculate savings. The quality of the remaining data is also important . . Page 22 DOD’s Reprted A-70 Savin@ F’i@uea Are Incomplete and Knaccumte for managementpurposes, For example, a changein severancepay pro- cedures, effective March 28,1990, permits severancepay for federal employees displaced by A-76 cost studies who go to work for successor contractors. DOD already collects information on employeesdisplaced becauseof A-76 contracting out. However, after reviewing fiscal year 1986 through 1988 data in the A-76 data base,we concluded that errors in the data would prevent DOD from accurately reporting on or reaching correct conclusions about these data-including whether OPM'S changeis accomplishing its intended purpose of encouraging displaced federal employeesto go to work for winning contractors. DOD'S A-76 staff plans to begin checking service-provided information using new, microcomputer-basederror routines. DOD'S A-76 official said the first error check-checking cost study dates-was started in Sep- tember 1989. He said when the system is fully operational, his office would supply the error lists to the servicesquarterly, replacing the DMDC feedback report. About 6 years ago, DOD officials responsible for the A-76 program cre- Special Computer ated a special computer program to calculate annual (recurring) savings Program Miscalculates for studies completed each year. One phase of the program generatesa Reported Total Annual total annual savings figure that cannot be matched to the sum of the savings from each individual study for that year. There is no clear ratio- Savings nale for the use of this part of the special program, and continuing its use will lead, in the future, to OMBand DOD having different total savings figures. To check the accuracy of the portion of the DOD computer program used to calculate annual savings, we summed the savings estimates for the 426 studies of fiscal years 1986 through 1988 that DOD included in its calculations, using DOD'S savings formula for each individual study. In comparing our results with those of the computer program, we found that part of the computer program miscalculates total savings. The dif- ference in total savings figures produced by that portion of the com- puter program and by summing is shown in table 1.3.DOD A-76 officials could not explain why annual savings were not simply calculated on an individual study basis and then summed, and they were not aware of the magnitude of the difference. Page23 GAO/GGD-30-53 OMB Circuhr A-76 Appendix I DOD’s Reported A-70 Savh@ Pi@ueu Are Iucomplete and Inaccnate Table 1.3:Differences in Projected Recurring Savings-Special Computer Projected savings, Projected swings, Program vs. Summing Fiscal year DOD program’ summing Difference 1966 $64.6 million $88.9 million + $4.3 million 1987 $85.7 million $87.0 million + $1 .3 million 1988 $129.3 million $128.0 million - $1.3 million aAt our request, DMDC provided calculated totals for studies completed in fiscal years 1986 through 1988 using information as of December 31, 1988. These totals do not match those reported at the end of each fiscal year by DOD ($67 million, $76 million, and $114.5 million) because of changes to data made by services and agencies dunng quarterly updates subsequent to the year-end reports. Since the first quarter of fiscal year 1989, DOD has been providing com- puterized individual study information to OMB. OMBA-76 officials said that they intend to use this information in the future to calculate total DOD savings by summing acrossindividual studies. Thus, if DOD contin- ues to use its special computer program, total savings figures as calcu- lated by DOD and OMB will no longer match. Neither DOD nor OMBhas much information about the overall administra- Lack of Information tive costs of the A-76 program, so that neither knows whether the pro- on A-76 Program Costs gram is cost beneficial. The issue of A-76 program costs has becomea concern to several congressionalcommittees. For example, expenditures to administer the program have been a focus of congressionaldiscussion on DOD’S appropriation for fiscal year 1990. DOD plans to stop collecting data on the hours expendedto do individual A-76 studies. While such data could be useful in determining the cost effectiveness of the program, A-76 officials at all levels noted difficul- ties with its collection. We found that little is known about actual DOD A-76 program costs. In January 1988, in testimony before the President’s Commissionon Priva- tization, the Deputy Assistant Secretary of Defensefor Installations said that DOD spends about $160 million to $300 million per year on the A-76 program, and there are probably large costs in addition to that which DOD could not quantify.6 DOD’S A-76 and DMDC staffs could not provide us with any additional information on overall costs.An OMB A-76 official said that OMB’S only information on DOD costs was from about 1986, when DOD reported that there were more than 1,700 personnel working 6A-76programcostsand savingsfigures should be comparedwith caution. Costsduring a year are one-timeand involve both studiescompletedthat year and studiesstill in progress.A-76 savings during year result from (1) studiescompletedin prior years(such studiesgeneratea streamof recurr@-annual-savings), and (2) studiescompletedin that year. Page 24 GAO/GGMO-63 OMB circplar A-76 DOD’r Re~rted A-76 Savings Fl@res Are Incomplete and Inaccumte full time on the A-76 program throughout DOD. OMB’S A-76 official said that OMB doesnot believe information on the cost of the A-76 program should be routinely collected becausethe A-76 program is aimed at achieving managementefficiencies, which is what all government mana- gers should be doing. OMBhas said that managerswho meet what should be normal performance standards will not encounter any new require- ments in doing an A-76 cost study. DOD now requires its componentsto collect and report the number of staff hours spent to do each cost study, but it is planning to eliminate this requirement. We believe that such information could help evaluate whether the studies being done represent the best use of A-76 resources. For example, someservice A-76 officials told us that for activities with 10 or fewer full-time positions, the costs of doing an A-76 study exceeded,on average,the expected savings from such a study.6 Accord- ing to DOD’S data base, 189 (39 percent) of the 489 studies completed in fiscal years 1986 through 1988 involved 1 to 10 positions (table 1.4). Table 1.4: Completed Studies involving 1 to 10 Positions (“Small Studies”) All completed A-76 studies Small studies No. ot No. ot Fiscal vear studies Positions studied studies Positions studied 1986 182 6,769 72 431 1987 148 7,570 52 328 1988 159 10,766 85 365 Total 499 25.105 189 1.124 DOD and service officials said that they do not use the data on hours expended, and the data being reported are unreliable becauseinstalla- tions are not using the samecriteria to measure the number of staff hours. OMB’S A-76 tracking system does not require the reporting of hours or costs to do individual A-76 studies. OMB considers study costs to be a normal cost of business.OMB’S A-76 officials also noted the diffi- culty of obtaining reliable data. Our analysis of the data in the DOD A-76 data base on hours expended found that most installations are either not reporting hours or are reporting numbers that do not appear to be com- parable to other studies7 ‘%fficient data were not available for us to evaluatethe validity of this statement. 7Wecategorizedthe hours of study that were reportedas “not comparable”if the total represented either lessthan 26 hours per position in the rev&xl in-houseorganization,or morethan 1,000hours per position. Page 25 GAO/GGDo(MB OMB CYXrdar A-76 Appendix II Objectives,Scope,and Methodology We did this assignment.at the request of the Chairman of the Subcom- mittee on Federal Services,Post Office, and Civil Service, SenateCom- mittee on Governmental Affairs. As agreedwith the Subcommittee,we focused on the A-76 efforts of the DOD, which has the most extensive experience with A-76 cost studies. We did not review any other agencies. Our objectives were to assess(1) the accuracy of DOD'S A-76 savings data reported to OMB and (2) the availability of information on the administrative costs of DOD'S A-76 program. We did not examine the part of the A-76 program involving conversion of an activity to a contract status without a full cost study, becauseDOD'S reported savings do not include these conversions. To assessthe accuracy of reported savings, we reviewed DOD'S proce- dures for calculating and reporting A-76 program savings. We also reviewed the completenessand consistency of the data on which DOD has basedits savings reports, using a computer file extracted from DOD'S A-76 data base,which we obtained from the DefenseManpower Data Center, Rosslyn, Virginia. To assessthe availability of information on the administrative cost of DOD'S A-76 program, we reviewed DOD report- ing instructions and the administrative cost information in DOD'S A-76 data base. We obtained background information from, and discussedour findings and conclusions with, A-76 officials at OMB,DOD, and headquarters of the Army, Navy, and Air Force. Sincethe Air Force ManagementEngineer- ing Agency (AF+MF,A) at Randolph Air Force Basein Texas managesthe Air Force A-76 managementinformation system, we also met with AF’MJU officials. Becausethese three services account for more than 95 percent of all DOD A-76 reported savings, we did not interview officials of other DOD components.We also reviewed prior reports on the A-76 program issued by GAO, DOD, and the servicesand other background information. To estimate approximate (and minimum) savings for the studies com- pleted in fiscal years 1986 through 1988 that were excluded from DOD'S savings reports, we used the following methodology to develop tables I. 1 and 1.2.This methodology is generally consistent with DOD'S formula for estimating savings, but its application is dependent on the DOD data base containing sufficient data. l For studies where the bid was won by the contractor, we counted as savings the difference between the bid of the revised in-house organiza- tion and the cost of contracting out. Page26 GAO/GGB~OMBcircularA-76 Appendix II Objectives, !kope, and Methodology l For studies where the staffing of the revised in-house organization was reported as being equal to or lower than the staffing of the original (baseline) organization, but no cost of the revised in-house organization was reported, we basedour savings estimates on the reduction in the number of positions. We assumedthat the savings from each position reduction was the sameas the averagecost, per person, of the revised in-house organizations for all other studies completed during the same fiscal year that DOD included in its savings figures and which were won in-house. l For studies where there was no qualified contractor bid but the cost of the proposed in-house organization was reported despite the DOD report- ing instruction not to do so, we used the standard DOD formula to esti- mate savings. We restricted our analysis to information for studies completed in fiscal years 1986 though 1988 becauseDOD issued the most recent reporting procedures for its A-76 data base in September 1985, and becauseOMB Circular A-76 was significantly revised in August 1983. The extract from the DOD A-76 data basethat we used contained information on completed and in progress cost comparisonsas of December31, 1988. We did not verify information in the data baseby comparing it to source documents. We did our work between April 1988 and September 1989, in accordancewith generally acceptedgovernment auditing standards. We obtained comments on our report from OMB.Formal written com- ments were also requested from DOD but were not received. . Page 27 GAO/GGIMO-66OMB Circular A-76 Appendix III CommentsFrom the Office of Management and Budget EXECUTIVE OFFICE OF THE PRESIDENT OFFICE OF MANAGEMENT AND BUDGET WASHINGTON DC 20503 February 12, 1990 Mr. Richard L. Fogel Assistant Comptroller General United States General Accounting Office Washington, DC 20548 Dear Mr. Fogel: Thank you for the opportunity to provide comments on the draft report, OMR CIRCULAR A-76: DOD’s Reoorted S ‘nes Figures Are N Reliable. In providing our comments, we would :ye to draw a distinzion between the inaccuracies found with DoD’s data system and the inferences drawn from those inaccuracies. The report assumes that (1) DoD savings are suspect and, as a consequence, (2) it is questionable whether the A-76 program is achieving economy in government operations. With respect to the inaccuracies, we recognize that there are aspects of the DoD system which can be improved. The system was first instituted in the 1970’s and many of the identified weaknesses are holdovers from a time when the A-76 program was less stringent than today. For example, the use of a formula to derive original operating costs stems from a time when the A- 76 program did not require that original costs be identi8ed. Likewise, the requirement to track actual costs, both in-house and contract, after the completion of a cost study is less than two years old. We concur, therefore, with GAO’s recommendations that DoD use actual cost information to calculate the original costs of an organization and the revised costs of the in-house organization, and that it collect information on in-house and contract cost changes. We also concur with the recommendations that DoD report all completed cost studies, conduct comprehensive edit checks on A-76 data, and place increased emphasis on correcting data errors. In response to the recommendation that DoD and OMB jointly design a pilot to test an approach for reliably measuring A-76 program administration costs, DoD has agreed to design such a pilot for DoD. We will monitor the progress of this effort. Page 28 GAO/GGIMO-66 OMB Circular A-76 While we agree with the need to improve the accuracy of the system, we are particularly concerned about the report's inference that as a consequence of system inaccuracies, the DoD savings are suspect and, by extension, that the A-76 program may not be achieving economy in government OperatiOnS. The report findings fail to support such an inference. In fact, the examples in the report demonstrate that the system tends to underestimate the savings generated by the A-76 program. Without a sensitivity analysis reflecting the impact of the inaccuracies found to the total savings estimate, it is impossible to determine if the magnitude of the inaccuracies are so significant as to make the data unreliable or the data insignificant. We recommend that such an analysis be conducted to determine if the inaccuracies significantly affect the level of savings reported by DOD. We also question whether a review of the DODA-76 data system "provides insight into OMB's use of the A-76 program to achieve economy rn government operationa.lS The inaccuracies in the DoD data do not necessarily exist in other agencies' systems. The savings rates reported by the civilian agencies, while varying by agency and type of function, are of the same magnitude aa those reported by DOD. Moreover, the savings generated by the A-76 program are quaLitative as well as quantitative. The report doea not address the lqsavingsn generated through improved contract administration, quality, management reporting and decision-making, or the benefits of establishing a measurable baseline for future performance evaluation. We do not believe that they can be used to support an argument that the A-76 program does not generate savings either for DODor for civilian agencies. sincerely, Peter J. Basso Assistant Director for General Management 2 Page29 GAO/GGI)-BG68OMBCbcalarA-76 RecentGAO ReportsAddressing RelatedIssues 1. NAVY CONTRACTING:Contract Administration Staffing Require- ments for Navy A-76 Studies, GA~/NSIAD~&~~~BR, July 26, 1988, for the Chairman, Subcommitteeon Government Efficiency, Federalism, and the District of Columbia, SenateCommittee on Governmental Affairs. We concluded that the projected contract administration staffing levels for the A-76 studies we reviewed were basedon specific work load data identified in the quality assuranceplans and were reviewed and approved as required by appropriate Navy guidance. The objectives of the review and approval processwere to eliminate any unnecessary staffing levels and to ensure that the staffing levels requested by the instalIations were adequately justified. Contract administration staffing levels that exceedthe ohin-authorizedlevels have not significantly affected the outcome of the Navy’s A-76 studies. While we did not review the appropriateness of OMB'S guidelines, Navy contract adminis- tration experience indicates the obu+authorizedstaffing levels may not be sufficient to administer A-76 contracts that involved multiple func- tions and technically complex tasks. 2. FEDERAL PRODUCTIVITY: DOD'S Experience in Contracting Out Com- mercially Available Activities, GAO~XD-~XM, November 281988, for the Chairman, Subcommitteeon Federal Services,Post Office, and Civil Ser- vice, SenateCommittee on Governmental Affairs. We said that the A-76 processhas led to savings and encouragedcompe- tition for providing quality goodsand services.Nearly half of DOD'S A-76 cost comparisons have resulted in decisionsto continue operating com- mercial activities with a government workforce. Many DOD managers support the concept of government/private sector competition and rec- ognize its objectives of seeking efficiencies and cost savings. However, major concernsraised by federal employeesand unions regarding various implementation issuescontinually cloud the A-76 cost study process.DOD A-76 cost studies often have beentime-consuming, difficult, disruptive, and threatening to activity managersand employees. Agencies have achieved only a fraction of past goals set by OMB for studying positions. OMB has recently set new goals, however, and these are nearly double those established in the past. Basedon agencies’past progress in meeting OMB’S goals, and given the length of time cost studies take, it is unlikely that the new goals will be met. Page 30 GAO/GGD~ OlKB Circular A-76 Appedi~ IV Beant GAO Repma Addressing Related IMIles 3. MANAGING THE GOVERNMENT:RevisedApproach Gould Improve Effectiveness, GAO/GGD-~Q-G,May 4,1989, to the Congress. OMES’S In the section discussing A-76, we said obstaclesagenciesidentified as hindering A-76 successinclude l lack of relevancy of the program to agency operations; . unrealistic study goals; l a burdensome,time-consuming cost study process; . unclear program objectives; . limited OMB program resources;and l poor congressionalrelations. Page 31 GAO/GGlMt6-63OMB circdar A-76 Appendix V Major Contributors to This Report A ~, n --~------ -_ William M. Hunt, Assistant Dirtxtor benem wvernment Nancy A. Patterson, Evaluator-in-Charge Division, Washington, V I John Broughton, Evaluator Joanne M. Parker, Technical Adviser David A. Schmitt, Regional Assignment Manager Norfolk Regional Office . (41063B) Page 32 GAO/GGDs(Ms OMB Circular A-76
OMB Circular A-76: DOD's Reported Savings Figures Are Incomplete and Inaccurate
Published by the Government Accountability Office on 1990-03-15.
Below is a raw (and likely hideous) rendition of the original report. (PDF)