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POGO Asks Pentagon for Better Tracking of Service Contracts

Last month, the Project On Government Oversight sent a letter to Defense Secretary Chuck Hagel warning of a “concerted effort” by Department of Defense (DoD) officials to “willfully breach laws and congressional mandates” that require better tracking of service contracts. This effort by the Pentagon blinds it to potentially billions of dollars in wasteful spending.

DoD and civilian agencies (see 31 USC § 501, Note “Service Contract Inventory”) are required to track all service contracts with the statutorily required Inventories of Contracts for Services (ICS). These inventories help ensure that contractors are properly overseen and aren’t performing work that must be performed by federal employees (a.k.a. inherently governmental functions). The inventories also assist in identifying contracts that should be considered for conversion to be performed by federal employees. And the inventories help rein in ungoverned contracting that is wasting billions of taxpayer dollars. When such spending isn’t reined in, the DoD ends up wastefully subsidizing big service-contracting companies instead of buying much-needed ships, aircraft, and the like. Yet, rather than implementing an effective ICS tracking system, DoD is “shirking its total force management responsibilities,” POGO wrote to Secretary Hagel. This blatantly breaks the law: the Under Secretary of Defense for Personnel and Readiness (P&R) is required by law to ensure the ICS is used to help activities throughout DoD achieve better Total Force management.

DoD is attempting to kill both the implementation of the Enterprise-wide Contractor Manpower Reporting Application (ECMRA) and the staffing of the Total Force Management Support Office (TFMSO) in P&R, an effort that will negatively impact budgeting and manpower decisions and mission and readiness capabilities. The people who lose the most due to P&R’s troubling actions are the Soldiers, Sailors, Airmen, and Marines that P&R is supposed to advocate for—they are being deprived of the equipment, training, and support they will need to credibly deter adversaries, and to achieve victory when deterrence fails.

Through the years, POGO has shown that contracting doesn’t always help agencies in general, and DoD specifically, save money. And additional records that have been obtained by POGO show that contract and federal employee cost comparisons can result in savings that are much greater than we estimated in our previous work—in some cases up to 30 percent.

Despite POGO’s exposure of service contracting weaknesses, senior leaders in the Office of Management and Budget (OMB), Congress, and DoD have ignored the problem (in fact, DoD’s P&R has consciously acted to make it worse).

The Office of Management and Budget deferred the reporting of civilian agency service contracting data for years. It also stopped working on a proposal to improve the “practice of comparing the relative cost of performance by Federal employees versus contract performance in order to identify the most cost-effective source.” POGO supported the cost-comparing effort and recommended that a panel be created to evaluate cost principles so that accurate data is available to make genuine comparisons; however OMB hasn’t moved forward to create a proposed rule and sources have told POGO that such a rule won’t be forthcoming.

Congress has been a disappointment, too. In the Fiscal Year 2015 National Defense Authorization Act that is nearing final approval, Congress removed requirements for Government Accountability Office (GAO) reviews of DoD’s compliance with the service contract reporting laws (see Sect. 912). Language in the bill (Sect. 813) extends a cap on service contract spending, but without valid inventories and GAO reviews of DoD’s systems, wasteful spending will inevitably continue. Additionally, House language was stripped (Sect. 913) from the final bill that would have required military, civilian, and contractor work to be “based on a determination of which sector of the Department’s workforce can perform the services in the most cost-efficient manner.” This provision would have removed any ambiguity in the existing law about how DoD determines what it means to hire the “most appropriate and cost efficient [workforce] mix.”

Senator Claire McCaskill (D-MO), Chairman of the Senate Homeland Security and Governmental Affairs Committee’s Subcommittee on Financial and Contracting Oversight, is the only leader who has steadfastly spoken out about the importance of the issue. Chairman McCaskill held a hearing and requested information that DoD doesn’t want to provide.

GAO has reported on DoD’s failings for years, but based on the recent GAO report on DoD compliance with service contract inventory laws and the lack of a plan moving forward, the situation is worse than expected. GAO found that the Pentagon isn’t complying with “legislative requirements” and is therefore not using inventories to support “management decisions.” P&R is preventing DoD from developing plans to use the service contract inventories “to facilitate DOD’s strategic workforce planning, workforce mix, and budget decision-making processes.” GAO found that numerous offices are responsible for the various decision-making processes but no office has been assigned the “specific responsibility for coordinating” the use of the inventories to improve operations.

Not only has P&R stalled ECMRA’s implementation, it has come to POGO’s attention that P&R might altogether abandon ECMRA in favor of the inadequate System for Award Management (SAM) to collect service contract inventories. A plan for moving forward (see Enclosure 1) was scheduled to be revealed to DoD officials on December 1, 2014. POGO reached out to DoD officials about P&R’s new plan, but no one form the Pentagon has responded.

In addition to POGO, Chairman McCaskill and the GAO, the American Federation of Government Employees (AFGE) is the only other entity talking about DoD’s non-compliance. AFGE expressed its concerns to Members of Congress, requesting that congressional leaders take action about DoD’s “recent decision to forsake commitments to formally establish a reliable and comprehensive inventory of service contracts.” AFGE raised additional concerns over P&R’s decision to take “a nearly three-month time out to consider using an entirely new manpower reporting data system, a development which can’t help but reduce the incentive of components to fulfill their inventory responsibilities.”

Last week, Jessica Wright, the Under Secretary of Defense for P&R, announced that she is unexpectedly retiring. It is not clear to what extend POGO’s letter to Secretary Hagel had on this decision. Regardless, many of the failures in standing up an effective ICS and implementing the ECMRA system occurred under Wright’s leadership. This is an opportunity for DoD to find new blood in the form of someone who will follow the law and recognize the importance of the service contracting tracking system, and how it impacts future military capabilities and readiness.

POGO asked Secretary Hagel to review whether actions taken by DoD officials are in compliance with service contract inventory laws and congressional mandates, whether DoD offices are contracting out inherently governmental functions, and whether his Department made false or misleading statements to Congress and federal watchdogs.

We’ll continue our push with the new leadership in P&R and the new Congress. We will also urge Ashton Carter to support the implementation an effective service contract inventory system as he moves through the confirmation process to replace Secretary Hagel. Carter’s pro-defense-industry views don’t bode well, but he is on the record supporting efforts to “assess the issue of appropriate use of contractors across the Department to determine whether and where else DoD’s reliance on contractors has become excessive.” He is also on record, during his tenure as the Deputy Secretary of Defense, promoting the use of ICS and using “cost analysis” to save money and right-size the workforce.

Right-sizing the workforce and saving billions of dollars at the same time seems like a win-win for DoD, taxpayers, and the men and women who have volunteered to go into harm’s way for our nation.