Pension Benefit Guaranty Corporation: Some Steps Have Been Taken 
to Improve Contracting, but a More Strategic Approach is Needed  
(18-AUG-08, GAO-08-871).					 
                                                                 
The Pension Benefit Guaranty Corporation (PBGC) insures the	 
pensions of more than 44 million workers in over 30,000 	 
employer-sponsored defined benefit pension plans. In response to 
growing workloads, PBGC has come to rely heavily on contractors  
to conduct its work. GAO was asked to report on (1) the role that
contracting plays in PBGC's efforts to accomplish its mission,	 
(2) the steps PBGC has taken to improve its acquisition 	 
infrastructure and develop a strategic approach to guide its	 
contracting activities, and (3) the steps PBGC has taken to	 
improve its contract oversight processes to ensure		 
accountability. To address these issues, we interviewed PBGC	 
officials and selected contractors, reviewed data on PBGC's	 
contracting activities; identified changes PBGC is making to	 
contracting procedures; and identified strategies PBGC uses to	 
monitor contracts.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-871 					        
    ACCNO:   A83604						        
  TITLE:     Pension Benefit Guaranty Corporation: Some Steps Have    
Been Taken to Improve Contracting, but a More Strategic Approach 
is Needed							 
     DATE:   08/18/2008 
  SUBJECT:   Agency missions					 
	     Contract administration				 
	     Contract oversight 				 
	     Contract performance				 
	     Contract termination				 
	     Contractors					 
	     Contracts						 
	     Data collection					 
	     Data integrity					 
	     Employees						 
	     Human capital management				 
	     Human capital planning				 
	     Internal controls					 
	     Pensions						 
	     Performance measures				 
	     Policy evaluation					 
	     Procurement planning				 
	     Procurement regulations				 
	     Strategic planning 				 
	     Performance-based contracting			 

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GAO-08-871

   

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Report to Congressional Requesters: 

United States Government Accountability Office: 
GAO: 

August 2008: 

Pension Benefit Guaranty Corporation: 

Some Steps Have Been Taken to Improve Contracting, but a More Strategic 
Approach Is Needed: 

GAO-08-871: 

GAO Highlights: 

Highlights of GAO-08-871, a report to congressional requesters. 

Why GAO Did This Study: 

The Pension Benefit Guaranty Corporation (PBGC) insures the pensions of 
more than 44 million workers in over 30,000 employer-sponsored defined 
benefit pension plans. In response to growing workloads, PBGC has come 
to rely heavily on contractors to conduct its work. GAO was asked to 
report on (1) the role that contracting plays in PBGCï¿½s efforts to 
accomplish its mission, (2) the steps PBGC has taken to improve its 
acquisition infrastructure and develop a strategic approach to guide 
its contracting activities, and (3) the steps PBGC has taken to improve 
its contract oversight processes to ensure accountability. 

To address these issues, we interviewed PBGC officials and selected 
contractors, reviewed data on PBGCï¿½s contracting activities; identified 
changes PBGC is making to contracting procedures; and identified 
strategies PBGC uses to monitor contracts. 

What GAO Found: 

Contracting plays a central role in helping PBGC achieve its mission 
and address unpredictable workloads. Since the mid-1980s, PBGC has had 
contracts covering a wide range of services, including the 
administration of terminated plans, payment of benefits, customer 
communication, legal assistance, document management, and information 
technology. PBGCï¿½s workforce currently consists of about 800 federal 
employees and utilizes the services of about 1,500 contract employees. 
From fiscal year 2000 through 2007, PBGCï¿½s contract spending increased 
steadily along with its overall budget and workload, and its use of 
contract employees has outpaced its hiring of federal employees. As its 
workloads have grown due to a significant number of large pension plan 
terminations, PBGC has relied on contractors to supplement its 
workforce, acknowledging that it has difficulty anticipating its 
workloads due to unpredictable economic conditions. 

PBGC is taking steps to improve its acquisition infrastructure, but the 
Procurement Department is not yet part of PBGCï¿½s strategic decision-
making process. In 2007, PBGC began to take steps to realign its 
Procurement Department, update contracting policies and processes, 
upgrade the skills of Procurement Department staff, and better track 
contracting data. PBGCï¿½s efforts begin to provide an improved 
foundation for the contracting function; however, these efforts are 
early steps and more remains to be done. PBGC has not fully integrated 
its contracting function at the corporate level; the Procurement 
Department is not included in corporate-level strategic planning and 
does not have a presence on PBGCï¿½s relevant strategic teams. 

PBGC has made improvements to contractor oversight and has begun to 
implement performance-based contracting that offers the potential for 
better contract outcomes, but also creates new challenges for contract 
oversight and monitoring efforts. PBGC has implemented new contract 
monitoring activities, improved oversight activities for some of its 
major contracts, and developed comprehensive procedures to direct 
contracting activities. For its field benefit administration office 
contracts, PBGC developed performance measures and scorecards, 
providing feedback about contractor performance in terms of timeliness 
and accuracy of benefit payments. Despite these improvements, most of 
PBGCï¿½s current contracts still lack performance incentives and methods 
to hold contractors accountable. PBGC recently began awarding more 
performance-based contracts, as a means to achieve better outcomes. 
Although performance-based contracting is recognized as a viable way 
toward getting better results from contractors, GAO and others have 
identified common challenges agencies face when implementing this 
approachï¿½from deciding which contracts are appropriate for a 
performance-based approach to deciding which outcomes to measure and 
emphasize. PBGC procurement officials recognize the benefits and 
challenges of performance-based contracting, and that they must provide 
additional oversight of contracts and a different approach to contract 
monitoring that focuses on outcomes rather than processes. 

What GAO Recommends: 

GAO recommends that PBGC revise its strategic plan to reflect the 
importance of contracting and to project its vision of future 
contractor use; and include the Procurement Department in agency-wide 
strategic planning. In response, PBGC agreed with most of our 
recommendations, but disagreed with incorporating more detail in its 
strategic planning documents, as it believes its recently issued 
strategic plan is sufficiently comprehensive. However, PBGCï¿½s plan 
mentions contracting only briefly and does not reflect the important 
role contracting plays in achieving its mission. 

To view the full product, including the scope and methodology, click on 
GAO-08-871. For more information, contact Barbara Bovbjerg at 202-512-
7215 or [email protected]. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

PBGC Relies on Contractors to Address Unpredictable Workloads: 

PBGC Is Taking Steps to Improve Its Acquisition Infrastructure but Has 
Not Yet Developed a Strategic Approach to Contracting: 

PBGC Has Made Improvements to Contractor Oversight, but Implementation 
of Performance-Based Contracting May Present Challenges: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Comments from the Pension Benefit Guaranty Corporation: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Figures: 

Figure 1: Overview of Plan Processing at PBGC: 

Figure 2: Cumulative Number of Pension Plans Administered by PBGC, 
Fiscal Years 2000-2007: 

Figure 3: Cumulative Number of Participants in Pension Plans 
Administered by PBGC, Fiscal Years 2000-2007: 

Figure 4: Total PBGC Contract Spending and Budget, Fiscal Years 2000- 
2007: 

Figure 5: Number of Federal Employees and Contractor Employees at PBGC, 
Fiscal Years 2000-2007: 

Figure 6: PBGC Organization Chart with the Number of Contract Employees 
and PBGC Federal Employees: 

Figure 7: Number of PBGC Pending Benefit Determinations, Fiscal Years 
2000-2007: 

Abbreviations: 

BAPD: Benefits Administration and Payment Department: 

COTR: contracting officers' technical representative: 

ERISA: Employee Retirement Income Security Act of 1974: 

FTE: full-time equivalent: 

MCU: Management Coordination Unit: 

NAPA: National Academy of Public Administration: 

OIG: Office of the Inspector General: 

OFPP: Office of Federal Procurement Policy: 

OMB: Office of Management and Budget: 

PBGC: Pension Benefit Guaranty Corporation: 

PPA: Pension Protection Act of 2006: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

August 18, 2008: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Charles E. Grassley: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Edward M. Kennedy: 
Chairman: 
The Honorable Michael B. Enzi: 
Ranking Member: 
Committee on Health, Education, Labor and Pensions: 
United States Senate: 

The Pension Benefit Guaranty Corporation (PBGC) insures pensions for 
more than 44 million workers in over 30,000 employer-sponsored defined 
benefit plans--private sector pension plans where an employer 
guarantees a benefit. PBGC's primary responsibility is to collect 
premiums from the sponsors of the pension plans and provide timely and 
uninterrupted benefit payments when terminations or bankruptcies occur. 
In the event of a distressed plan termination, PBGC assumes control of 
plan assets, calculates benefit amounts, and pays recipients a 
guaranteed benefit. In fiscal year 2007, roughly 611,000 beneficiaries 
received over $4.1 billion in benefit payments. In response to growing 
workloads, PBGC has come to rely heavily on contractors to conduct its 
work. PBGC's current workforce is made up of roughly two-thirds 
contractor employees and one-third federal employees. 

In July 2003, GAO designated PBGC's single-employer pension insurance 
program--its largest insurance program--as "high risk," including it on 
GAO's list of major programs that need urgent attention and 
transformation; the program remains on the list today.[Footnote 1] To 
strengthen pension plan funding, Congress passed the Pension Protection 
Act of 2006 (PPA). However, PBGC still showed an accumulated deficit of 
$14 billion for its single-employer program as of September 2007. 

Because of PBGC's reliance on contracts to carry out its mission, its 
acquisition infrastructure--the framework an agency must have in place 
to manage its contracting activities--will in part determine whether 
the agency succeeds in its mission. Previous GAO work identified 
challenges facing PBGC's contracting activities, which included PBGC's 
limited efforts to link contracting and staffing decisions to longer- 
term strategic planning, placing PBGC at risk for being unprepared for 
future workload changes.[Footnote 2] GAO also identified weaknesses in 
PBGC's contract oversight activities and in its contracting processes, 
resulting in limited competition and an over-reliance on contracts that 
carry more cost and quality assurance risks. These findings have been 
echoed in recent studies by PBGC's Inspector General. To ensure that 
PBGC is well positioned to manage its workload, we were asked to review 
PBGC's contracting function to follow-up on our earlier contracting 
work. Specifically, this report assesses (1) the role that contracting 
plays in PBGC's efforts to accomplish its mission, (2) the steps PBGC 
has taken to improve its acquisition infrastructure and develop a 
strategic approach to guide its contracting activities, and (3) the 
steps PBGC has taken to improve its contract oversight processes to 
ensure accountability. 

To assess the role contracting plays in PBGC's efforts to accomplish 
its mission, we collected and analyzed data on PBGC contracting 
activities, as well as on participants, plans, employees, and budget 
trends. To assess the steps PBGC has taken to improve its acquisition 
infrastructure and develop a strategic approach to guide its 
contracting activities, we evaluated PBGC's acquisition infrastructure 
in four key areas--organizational alignment and leadership, policies 
and procedures, human capital, and information management. We 
identified changes PBGC is making to its contracting procedures and to 
specific contracts, and reviewed progress made on these initiatives. To 
assess the steps PBGC has taken to improve its contract oversight 
processes, we identified the strategies PBGC uses to monitor its 
contracts. We reviewed documentation and spoke to officials responsible 
for monitoring customer satisfaction and the accuracy of benefit 
payments, and actions taken in response to the results of these 
monitoring efforts. We also reviewed a small, random sample of contract 
oversight files. In addition, we interviewed PBGC senior executives, 
managers, and programming and contracting staff at headquarters, as 
well as selected contractors. We also interviewed officials from PBGC's 
Office of Inspector General and reviewed relevant Inspector General 
reports. 

We conducted our work between May 2007 and August 2008 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 the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives. Appendix I discusses our scope and 
methodology in further detail. 

Results in Brief: 

Contracting plays a central role in helping PBGC achieve its mission 
and address unpredictable workloads. Since the mid-1980s, PBGC has had 
contracts covering a wide range of services, including the 
administration of terminated plans, payment of benefits, customer 
communication, legal assistance, document management, and information 
technology. PBGC's workforce currently consists of about 800 federal 
employees and utilizes the services of about 1,500 contract employees. 
From fiscal year 2000 through 2007, PBGC's contract spending increased 
steadily along with its overall budget and workload, and its use of 
contract employees has outpaced its hiring of federal employees. As its 
workloads have grown due to a significant number of large pension plan 
terminations, PBGC has relied on contractors to supplement its 
workforce, acknowledging that it has difficulty anticipating workloads 
due to unpredictable economic conditions. 

PBGC is taking steps to improve its acquisition infrastructure, but its 
Procurement Department is not yet part of PBGC's strategic decision- 
making process. In 2007, PBGC began to take steps to realign its 
Procurement Department, update contracting policies and processes, 
upgrade the skills of Procurement Department staff, and better track 
contracting data. In 2000, we recommended that PBGC develop a strategic 
approach to contracting by conducting a comprehensive review of PBGC's 
future human capital needs and using this review to better link 
contracting decisions to PBGC's long-term strategic planning process. 
PBGC took some initial steps to implement our recommendation, and has 
recently renewed its efforts and drafted a strategic human capital plan 
which calls for hiring a human resource specialist to coordinate and 
complete the planning process initiated in 2001. PBGC's efforts begin 
to provide an improved foundation for the contracting function; 
however, these efforts are early steps and more remains to be done. 
PBGC has not fully integrated its contracting function at the corporate 
level. For example, the Procurement Department is not included in 
corporate-level strategic planning and does not have a presence on 
PBGC's relevant strategic teams--the Operations Integration Board, the 
Budget and Planning Integration Team, and the Capital Planning for 
Information Technology Team. 

PBGC has made improvements to contractor oversight since our last 
report and has begun to implement performance-based contracting, which 
offers the potential for better contract outcomes but also creates new 
challenges for contract oversight and monitoring efforts. In response 
to concerns about contract oversight raised by us and PBGC's Inspector 
General, PBGC has implemented new contract monitoring activities, 
improved oversight activities for some of its major contracts, and 
developed comprehensive procedures to direct contracting activities. 
For its field benefit administration office contracts, PBGC developed 
performance measures and scorecards, providing feedback about 
contractor performance in terms of timeliness and accuracy of benefit 
payments. The Procurement Department also implemented refresher 
training requirements for contracting officers' technical 
representatives (COTR),[Footnote 3] who are responsible for much of the 
direct contract oversight. Despite these improvements, most of PBGC's 
current contracts still lack performance incentives and methods to hold 
contractors accountable. PBGC recently began awarding more performance- 
based contracts, which can achieve better contract outcomes. Although 
performance-based contracting is recognized as a viable way to get 
better results from contractors, GAO and others have identified common 
challenges agencies face when implementing this approach--from deciding 
which contracts are appropriate for a performance-based approach to 
deciding which outcomes to measure and emphasize. PBGC procurement 
officials recognize the benefits and challenges of performance-based 
contracting and that they must provide additional oversight of 
contracts and a different approach to contract monitoring that focuses 
on outcomes rather than processes. 

To improve performance in an environment of heavy contract use, we are 
making several recommendations to PBGC. These include revising its 
strategic planning documents to reflect the importance of contracting 
and PBGC's use of contractors, projecting its vision of future 
contractor use, better linking staffing and contracting decisions at 
the corporate level, and including the Procurement Department in agency-
wide strategic planning. We also are making several recommendations to 
PBGC that are intended to improve its contract management as it 
implements a performance-based approach to contracting. 

In response to our draft report, PBGC's Director stated PBGC's 
commitment to managing its contracting activities to obtain the best 
value for the 44 million beneficiaries of its insurance program. PBGC 
agreed with most of our recommendations and mentioned various ways it 
planned to address them. For example, PBGC stated that it understood 
that other government agencies have faced challenges in implementing 
performance-based contracting and plans to take steps to avoid common 
pitfalls. While PBGC agreed that contracting should be part of its 
strategic planning process, it disagreed with our recommendation to 
reflect the importance of contracting and incorporate its vision for 
future contractor use in its strategic planning documents, as it 
believes its recently issued strategic plan is sufficiently 
comprehensive. However, PBGC's strategic plan only briefly mentions 
performance-based contracting, flexible staffing and metrics for 
specific contracts, and therefore we believe that it does not reflect 
the important role contracting is playing in achieving PBGC's mission. 
In addition, PBGC disagreed with our recommendation that its Director 
of Procurement should sit on certain specific corporate committees. 
Because PBGC relies to such a great extent on contracting, we believe 
that it is essential that an individual well-versed in procurement 
operations be more integrated into PBGC's planning for the future. 
PBGC's comments are reproduced in appendix II. 

Background: 

Overview of PBGC: 

The Employee Retirement Income Security Act of 1974 (ERISA) created 
PBGC as a self-financing, nonprofit, wholly owned government 
corporation.[Footnote 4] PBGC protects participants in private pension 
plans from losing guaranteed benefits due to the termination of 
underfunded plans. PBGC's primary responsibilities are to collect 
premiums from the sponsors of defined benefit plans to insure against 
default and to assume administration of underfunded plans that 
terminate. In the event of a plan default, PBGC assumes control of plan 
assets (including amounts due and payable from the plan sponsor); 
calculates benefit amounts due to plan participants, commonly 
communicated in "benefit determination letters;" and pays recipients as 
benefits are due. 

Generally, pension plans under PBGC's administration, in which final 
benefit determination letters have not yet been issued, are considered 
estimated plans. PBGC pays benefits in estimated amounts until final 
determinations are made, routinely taking several years to complete all 
benefit determinations for plans that terminate. When all letters are 
issued and participant appeal periods have expired, plans are then 
closed and moved to ongoing administration where they generally require 
limited maintenance to reflect participants' marital changes, address 
changes, deaths, and other events.[Footnote 5] Figure 1 provides an 
overview of the steps involved in processing a terminated pension plan. 

Figure 1: Overview of Plan Processing at PBGC: 

[See PDF for image] 

This figure is an illustration of an overview of Plan Processing at 
PBGC, as follows: 

Pretermination: 
* Monitor underfunded plans; 
* Work with plans that face distress terminations. 

Initial Trusteeship (Termination): 
* Develop and obtain agreement on plan trusteeship[A]; 
* Notify retirees and request information; 
* Ensure that retirees receive benefit payments. 

Audit: 
* Determine and gather needed plan documents; 
* Identify best available source for participant data; 
* Define plan population; build and audit participant database; 
* Audit plan assets; 
* Determine employer liability. 

Benefit Valuation: 
* Calculate individual benefits; 
* Determine PBGCï¿½s overall benefit liability. 

Notification: 
* Determine if benefit being paid is correct; 
* Notify participants of the benefit amount; 
* Process participantsï¿½ appeals. 

Postvaluation Administration (Ongoing): 
* Process address changes; 
* Process death notices; 
* Calculate benefit at participantï¿½s actual retirement; 
* Place participants in pay status at retirement; 
* Respond to participantsï¿½ requests regarding their benefits. 

Source: PBGC. 

[A] Trusteeship is the process by which PBGC assumes continuing 
responsibility for a pension plan that terminates. 

[End of figure] 

Over the years, PBGC's workloads have grown significantly. In fiscal 
year 1975, the first year after the passage of ERISA, PBGC administered 
three pension plans with a total of 400 participants. By fiscal year 
2007, PBGC administered almost 3,800 pension plans with over 1.3 
million participants. Figures 2 and 3 show the number of pension plans 
and participants administered by PBGC since fiscal year 2000--the last 
time GAO issued a report on this subject. Between fiscal years 2002 and 
2005, PBGC experienced a large number of claims that contributed to its 
workload growth. 

Figure 2: Cumulative Number of Pension Plans Administered by PBGC, 
Fiscal Years 2000-2007: 

[See PDF for image] 

This figure is a vertical bar graph depicting the following data: 

Fiscal year: 2000; 
Number of plans: 2,874. 

Fiscal year: 2001
Number of plans: 2,976. 

Fiscal year: 2002; 
Number of plans: 3,132. 

Fiscal year: 2003; 
Number of plans: 3,287. 

Fiscal year: 2004; 
Number of plans: 3,479. 

Fiscal year: 2005; 
Number of plans: 3,585. 

Fiscal year: 2006; 
Number of plans: 3,683. 

Fiscal year: 2007; 
Number of plans: 3,793. 

Source: PBGC. 

[End of figure] 

Figure 3: Cumulative Number of Participants in Pension Plans 
Administered by PBGC, Fiscal Years 2000-2007: 

[See PDF for image] 

This figure is a vertical bar graph depicting the following data: 

Fiscal year: 2000; 
Number of participants: 541,000. 

Fiscal year: 2001
Number of participants: 624,000. 

Fiscal year: 2002; 
Number of participants: 783,000. 

Fiscal year: 2003; 
Number of participants: 934,000. 

Fiscal year: 2004; 
Number of participants: 1,061,000. 

Fiscal year: 2005; 
Number of participants: 1,296,000. 

Fiscal year: 2006; 
Number of participants: 1,271,000. 

Fiscal year: 2007; 
Number of participants: 1,305,000. 

Source: PBGC. 

[End of figure] 

Previous Assessments of PBGC Contracting: 

In September 2000, we identified a variety of challenges facing PBGC's 
contracting activities.[Footnote 6] Faced with a significant influx of 
large pension plan failures beginning in the mid-1980s, PBGC chose to 
contract for services rather than seek additional federal employees 
during a period of government downsizing. Over time, PBGC continued 
contracting for services to address backlogs, but was focused on 
obtaining necessary services quickly. As a result, we found that PBGC 
did not adequately link decisions to contract for services to longer-
term strategic planning considerations. We recommended that PBGC 
develop a strategic approach to contracting by conducting a 
comprehensive review of PBGC's future human capital needs and using 
this review to better link contracting decisions to PBGC's long-term 
strategic planning process. In response to our recommendation, PBGC 
commissioned a study by the National Academy of Public Administration 
(NAPA). NAPA provided a six-step model for PBGC to follow for its 
strategic human capital planning. Upon completion of this study, PBGC 
convened a workforce planning team that initiated some of the steps 
NAPA suggested. 

Our work also identified weaknesses in PBGC's contract planning and 
execution processes, which may have led to overuse of labor-hour 
contracts rather than fixed-price contracts and also to limited 
competition. PBGC's contractor oversight activities also exhibited 
weaknesses, including a lack of data essential for monitoring 
performance, quality assurance review processes and policies, and 
procedural guidance. Finally, we identified a potential lack of 
independence on the part of the office that was responsible for 
auditing and reviewing PBGC contracting activities. Many of these 
findings have been echoed more recently by PBGC's Inspector General. 

PBGC's Inspector General issued a report on contracting trends in July 
2007.[Footnote 7] The Inspector General noted that the three major 
areas cited most often as needing improvements were questioned costs 
(unsupported and or unauthorized costs that contractors billed to 
PBGC); lack of documented contracting policies, procedures, and 
directives; and inadequate contractor oversight. The leading causes for 
questioned costs were that contractors: (1) did not maintain adequate 
documentation to justify the costs they billed PBGC and (2) 
subcontracted with employees who did not have the qualifications 
required under the contract. Inspector General reports also noted that 
PBGC has no comprehensive contracting directives or policy guidance 
available to aid contracting officials and contractors to carry out 
their respective duties. The reports also identified significant 
contracting problems and control vulnerabilities, often stemming from a 
lack of adequate monitoring of contractor performance. Appendix II 
includes a list of related GAO and PBGC Inspector General Reports. 

Acquisition Framework: 

In response to federal agencies' increasing reliance on contractors to 
perform their missions and the systemic weaknesses identified in key 
areas of contracting by GAO, inspectors general, and other 
accountability organizations, in 2005, we published a Framework for 
Assessing the Acquisition Function at Federal Agencies.[Footnote 8] The 
framework enables high-level, qualitative assessments of the strengths 
and weaknesses of the contracting function. 

The framework consists of four interrelated cornerstones that our work 
has shown are essential to an efficient, effective, and accountable 
contracting process. 


* Organizational alignment and leadership. Organizational alignment 
assures the appropriate placement of the contracting function in the 
agency, with stakeholders having clearly defined roles and 
responsibilities. Key elements and critical success factors include 
aligning contracting with the agency's mission and needs and organizing 
the contracting function to operate strategically. Committed leadership 
enables officials to make strategic decisions that achieve agency-wide 
contracting outcomes more effectively and efficiently. In fact, the 
Services Acquisition Reform Act of 2003 requires that certain civilian 
executive agencies designate a Chief Acquisition Officer that has 
management of acquisition as their primary duty.[Footnote 9] An 
executive in this position would address acquisition workforce needs 
and strategies as part of strategic planning and performance results 
processes. 

* Policies and processes. Implementing strategic decisions to achieve 
desired agency-wide outcomes requires clear and transparent policies 
and processes that are implemented consistently. Policies establish 
expectations about the management of the contracting function. 
Processes are the means by which management functions will be performed 
and implemented. Effective policies and processes govern the planning, 
award, administration, and oversight of contracting efforts. 

* Human capital. Successfully acquiring goods and services, and 
executing and monitoring contracts requires valuing and investing in 
the contracting workforce. Agencies must think strategically about 
attracting, developing, and retaining talent, and creating a results- 
oriented culture within the contracting workforce. 

* Knowledge and information management. Effective knowledge and 
information management provides credible, reliable, and timely data to 
make contracting decisions. Stakeholders in the contracting process-
-Procurement Department and program staff who decide which goods or 
services to buy; project managers who receive the goods and services; 
managers who maintain supplier relationships; contract administrators 
who oversee compliance with the contract; and the finance department 
that pays for the goods and services--need meaningful data to perform 
their respective roles and responsibilities. 

PBGC Relies on Contractors to Address Unpredictable Workloads: 

Contracting plays a central role in helping PBGC achieve its mission 
and address unpredictable workloads. PBGC's contracts cover a wide 
range of services, including the administration of terminated plans, 
payment of benefits, customer communication, legal assistance, document 
management, and information technology. Its contract spending has 
increased steadily along with overall budget and workload, and use of 
contracted staff has outpaced its hiring of federal employees. PBGC has 
relied on contractors to supplement its workforce since the mid-1980s 
as its workloads have grown due to a significant number of pension plan 
terminations. PBGC acknowledges that it has difficulty anticipating its 
workloads due to unpredictable economic conditions and relies on 
contractors to expand or reduce its workforce as necessary. 

PBGC's Contract Spending Has Increased along with Overall Budget, and 
Growth in Contract Employees Has Outpaced PBGC Employees: 

To address the increase in the overall number of pension plans and 
participants, PBGC's budget increased steadily over the last 8 years, 
from $165 million in fiscal year 2000 to $398 million in fiscal year 
2007. Similarly, PBGC's contract spending increased from $122 million 
in fiscal year 2000 to $297 million in fiscal year 2007, as shown in 
figure 4. Contracting represented 71 percent of PBGC's appropriated 
budget during this period. Across the federal government, contract 
spending has more than doubled since fiscal year 2000, going from about 
$208.8 billion to $430 billion. The Departments of Defense and Homeland 
Security account for the majority of the increase, while other agencies 
vary in their budget changes. In previous work on contract spending at 
various agencies, we found that overall, about a quarter of agencies' 
discretionary spending was through contracts.[Footnote 10] Therefore, 
PBGC's contract spending as a percentage of its discretionary budget is 
relatively high, although most federal agencies have increased their 
contract spending in recent years. 

Figure 4: Total PBGC Contract Spending and Budget, Fiscal Years 2000- 
2007: 

[See PDF for image] 

This figure is a multiple vertical bar graph depicting the following 
data: 

Fiscal year: 2000; 
Contract spending: $122 million; 
Total PBGC appropriation: $165 million. 

Fiscal year: 2001; 
Contract spending: $134 million; 
Total PBGC appropriation: $191 million. 

Fiscal year: 2002; 
Contract spending: $153 million; 
Total PBGC appropriation: $227 million. 

Fiscal year: 2003; 
Contract spending: $194 million; 
Total PBGC appropriation: $271 million. 

Fiscal year: 2004; 
Contract spending: $202 million; 
Total PBGC appropriation: $294 million. 

Fiscal year: 2005; 
Contract spending: $249 million; 
Total PBGC appropriation: $351 million. 

Fiscal year: 2006; 
Contract spending: $276 million; 
Total PBGC appropriation: $386 million. 

Fiscal year: 2007; 
Contract spending: $297 million; 
Total PBGC appropriation: $398 million. 

Source: PBGC. 

[End of figure] 

The number of PBGC's contract employees has grown significantly more 
than PBGC employees. As figure 5 shows, PBGC had 791 contract employees 
in fiscal year 2000. By fiscal year 2007, there were over 1,500 
contract employees. Conversely, PBGC's federal employees increased 
modestly from 763 in fiscal year 2000 to 811 in fiscal year 2007. The 
largest increases in contractor employees correspond to the failure of 
several large plans, resulting in workload increases that occurred from 
fiscal year 2002 through fiscal year 2005. The number of contract 
employees peaked in fiscal year 2006 at 1,768, and has since fallen to 
1,502 in fiscal year 2007, as PBGC is completing the work associated 
with terminating these large plans. 

Figure 5: Number of Federal Employees and Contractor Employees at PBGC, 
Fiscal Years 2000-2007: 

[See PDF for image] 

This figure is a multiple vertical bar graph depicting the following 
data: 

Fiscal year: 2000; 
Federal employees: 763; 
Contractor employees: 791. 

Fiscal year: 2001; 
Federal employees: 775; 
Contractor employees: 919. 

Fiscal year: 2002; 
Federal employees: 773; 
Contractor employees: 1,248 

Fiscal year: 2003; 
Federal employees: 754; 
Contractor employees: 1,342. 

Fiscal year: 2004; 
Federal employees: 776; 
Contractor employees: 1,331. 

Fiscal year: 2005; 
Federal employees: 784; 
Contractor employees: 1,639. 

Fiscal year: 2006; 
Federal employees: 822; 
Contractor employees: 1,768. 

Fiscal year: 2007; 
Federal employees: 811; 
Contractor employees: 1,502. 

Source: PBGC. 

Note: PBGC data show the number of federal employees as of September 30 
of each fiscal year. Historical PBGC data on contractor employees show 
the number reported on different dates in each fiscal year. 

[End of figure] 

PBGC Contracts for a Wide Range of Services: 

PBGC contracts for a wide range of services including: 

* operating its 10 field benefit administration offices throughout the 
country--field benefit administration office contract employees perform 
the majority of benefits estimation and plan administration processing; 

* managing PBGC's $68 billion of assets; 

* paying benefits to participants; 

* developing, overseeing, and managing new systems and information 
technology projects in support of program operations; and: 

* handling of customer inquiries through its customer call center. 

PBGC also has certain functions, such as audit and actuarial functions, 
where contract employees work side by side with federal employees and 
supplement their efforts. PBGC also contracts for specialized services 
that may not be needed on a routine basis. For example, while PBGC has 
in-house attorneys who handle the majority of PBGC's litigation and 
negotiations, occasionally there are cases where it is necessary for 
PBGC to retain outside counsel. According to PBGC officials, hiring 
lawyers with special expertise on a full-time basis, rather than as 
needed, would be cost prohibitive. When PBGC needs outside legal 
services, it solicits proposals from these firms for the needed 
services. According to PBGC officials, this arrangement makes it 
possible for PBGC to secure necessary legal services quickly and 
efficiently. 

PBGC Relies on Contractors to Address Unpredictable Workloads: 

To carry out its operations, PBGC has relied on contractors to address 
its unpredictable workload, which is driven largely by pension plan 
terminations. In 2001, PBGC convened a workforce planning team to 
analyze its future service demands. The team recognized that 
fluctuations in the economy, or business cycle, could result in 
significant fluctuations in PBGC workloads. For example, PBGC typically 
sees an increase in terminations 1 to 2 years after a decline in the 
economy. The team noted that PBGC must remain flexible to rapidly 
expand or reduce its processing capacity to meet changing workloads, 
but cautioned that it was important to keep the highest level of 
expertise in-house. Figure 6 shows the number of contract employees and 
federal employees at PBGC, by office. 

Figure 6: PBGC Organization Chart with the Number of Contract Employees 
and PBGC Federal Employees: 

[See PDF for image] 

This figure is an illustration of the PBGC Organization Chart, as 
follows: 

Board of Directors; 
Office of the Inspector General (24 contractors, 21 FTEs); 
Director (0 contractors, 2 FTEs): 
* Advisory Committee; 
* Office of Equal Opportunity (0 contractors, 3 FTEs); 
Deputy Director, Office of Policy and External Affairs (14 contractors, 
38 FTEs): 
- Communications and Public Affairs Department; 
- Legislative and Regulatory Department; 
- Policy, Research and Analysis Department; 

Under the Director: 
* Chief Operating Officer (933 contractors, 273 FTEs); 
- Benefits Administration and Payment Department; 
- Actuarial Services Division; 
- Operations and Actuarial Systems Division; 
- Retirement Services Division; 
- Trusteeship Processing Division; 
- Problem Resolution Office. 
* Chief Insurance Officer (18 contractors, 151 FTEs); 
- Department of Insurance Supervision and Compliance; 
- Office of Chief Counsel; 
-Multi-employer Program Division; 
- Standard Termination and Compliance Division. 
* Chief Financial Officer (65 contractors, 108 FTEs); 
- Contracts and Control Review Department; 
- Financial Operations Department. 
* Chief Management Officer (34 contractors, 71 FTEs); 
- Budget Department; 
- Facilities and Services Department; 
- Human Resources Department; 
- Procurement Department; 
- Strategic Planning and Evaluation Department. 
* General Counsel (24 contractors, 55 FTEs); 
- Appeals Division; 
- Disclosure Division; 
- Legal Division. 
* Chief Information Officer (390 contractors, 84 FTEs); 
- Office of Information Technology. 

Total contractor employees: 1,502. 
Total full-time equivalent (FTE) federal employees: 806. 

Source: PBGC. 

Note: PBGC data on the number of full-time equivalent (FTE) PBGC 
federal employees and contract employees are broken out by component as 
of June 2007. These numbers vary somewhat throughout the year and 
differ slightly from the number at the end of the fiscal year because 
of timeframes reported. 

[End of figure] 

Although PBGC is currently experiencing a decline in new terminated 
plan workloads, the case processing cycle takes an average of 3 years 
or more. In determining the need for contract employees, PBGC considers 
both the incoming workload and the workload currently in process. A 
PBGC official noted that in order to balance the current benefit 
determination workload and the anticipated decline in the incoming 
workload, PBGC is allowing field benefit administration office staff 
increases only when there is a clear demonstration of need. See figure 
7 for recent trends in pending benefit determinations. 

Figure 7: Number of PBGC Pending Benefit Determinations, Fiscal Years 
2000-2007: 

[See PDF for image] 

This figure is a vertical bar graph depicting the following data: 

Fiscal year: 2000; 
Number of pending benefit determinations: 168,886. 

Fiscal year: 2001; 
Number of pending benefit determinations: 183,292. 

Fiscal year: 2002; 
Number of pending benefit determinations: 280,963. 

Fiscal year: 2003; 
Number of pending benefit determinations: 386,695. 

Fiscal year: 2004; 
Number of pending benefit determinations: 391,413. 

Fiscal year: 2005; 
Number of pending benefit determinations: 481,243. 

Fiscal year: 2006; 
Number of pending benefit determinations: 374,065. 

Fiscal year: 2007; 
Number of pending benefit determinations: 356,022. 

Source: PBGC. 

Note: Pending benefit determinations are shown as of the end of the 
fiscal year. 

[End of figure] 

According to a PBGC official, PBGC doesn't foresee large plan 
terminations and bankruptcies coming in 2008 or 2009, but there are a 
few plans it is monitoring that could have significant impact on PBGC. 
Thus, PBGC is in the delicate position of beginning to decrease 
contract resources while still remaining prepared for possible workload 
increases in a time of uncertain financial conditions. 

PBGC Is Taking Steps to Improve Its Acquisition Infrastructure but Has 
Not Yet Developed a Strategic Approach to Contracting: 

In 2007, PBGC began to realign its Procurement Department, update 
contracting policies and processes, upgrade the skills of Procurement 
Department staff, and better track contracting data. While these 
efforts provide an improved foundation for the contracting function, 
they are early steps and a strategic approach to contracting has not 
yet been developed. 

PBGC Is Taking Steps to Improve Its Acquisition Infrastructure: 

PBGC's heavy reliance on contract support requires an adequate 
acquisition infrastructure to ensure an efficient, effective, and 
accountable contracting function. An agency's acquisition function 
stands on four interrelated cornerstones--organizational alignment and 
leadership, policies and processes, human capital, and knowledge and 
information management.[Footnote 11] In 2007, PBGC hired a new 
procurement director who has taken steps to improve the acquisition 
infrastructure in the four cornerstone areas; however, the acquisition 
function's infrastructure is still inadequate in some areas. 

Organizational Alignment and Leadership: 

The appropriate placement of the acquisition function within an agency 
can facilitate efficient and effective management of acquisition 
activities. In our work on best practices, we learned that leading 
companies elevated or expanded the role of the company's acquisition 
organization--typically assigning it greater responsibility and 
authority for strategic planning, management, and oversight of the 
company's services spending. These changes transformed the role of the 
purchasing unit from one focused on mission support to one that was 
strategically important to the company's bottomline.[Footnote 12] 
Further, recent legislation recognized the importance of placing the 
acquisition function at an appropriate level and mandates that most 
executive departments appoint a chief acquisition officer.[Footnote 13] 

PBGC's Procurement Department does not play a strategic role within the 
corporation and does not have an active role in the strategic decision- 
making process, becoming involved only once a requisition is submitted 
to the department. For example, the procurement director is not part of 
the following three teams that focus on initiatives that support the 
corporation's strategic plan. 

* The Operations Integration Board, whose members include the entire 
Executive Management Committee, provides a forum for the senior 
leadership to commission and review corporate-wide programs, projects, 
and internal policies. Significant projects that cross organizational 
lines and require multiorganizational resources are presented to the 
board for approval. 

* The Budget and Planning Integration Team is responsible for approving 
corporate-wide resource allocations and aligning resources to PBGC's 
strategic objectives. This team also makes recommendations on large 
funding requests that are subject to approval by the Operations 
Integration Board. 

* The Capital Planning for Information Technology Team reviews 
information technology investments to assure the alignment of 
information technology capital investments with the corporate strategic 
plan and to monitor and control the execution of those investments. The 
team provides recommendations to the Operations Integration Board and 
the Budget and Planning Integration Team as the recommendations affect 
operations or budget. 

As a result, the Procurement Department has no input into the decision 
to acquire goods or services through contracting; it is responsible for 
implementing the policy decisions made by the executive management team 
but has no voice in making these decisions. The Procurement 
Department's involvement on such boards could improve strategic 
planning by enabling PBGC to identify and manage relationships among 
the parties involved in the acquisition process; analyze aggregate 
agency needs and devise strategic acquisition plans; and take into 
consideration the effects of external factors, such as the 
appropriations process, on the timing and execution of major contracts. 
Further, while PBGC has recently published its strategic plan and begun 
developing a strategic human capital plan, the agency has not actively 
involved the Procurement Department in the process. The Procurement 
Department's lack of involvement in strategic decision making is an 
indicator that it may be unable to identify, analyze, prioritize, and 
coordinate agency-wide acquisition needs. 

Policies and Processes: 

Policies and processes govern the way an agency performs the 
acquisition function. The acquisition function does not end with the 
award of contracts, but continues through contract implementation and 
closeout. Acquisition policies and processes should clearly define the 
roles and responsibilities of all involved in the acquisition process 
and need to be communicated clearly to all involved. In addition, 
implementing strategic acquisition decisions to achieve agency-wide 
outcomes requires clear, transparent, and consistent policies and 
processes that govern the planning, award, administration, and 
oversight of acquisitions. 

PBGC updated its contracting policies and procedures in 2008. In the 
past year, with the support of executive management, the Procurement 
Department updated and issued two procurement directives that spell out 
roles and responsibilities of all individuals involved in the 
acquisition process and outline procurement and obligation procedures. 
The Procurement Department issued policies requiring high-level 
approval for certain types of transactions, such as issuing labor-hour- 
type contracts and making modifications to contracts. The Procurement 
Department has recently completed a comprehensive procurement manual 
that outlines standard operating procedures and provides examples to 
illustrate guidance. The General Counsel's Office has provided guidance 
on when the legal review of acquisitions is required, and works closely 
with the Procurement Department in performing legal reviews and 
providing legal advice. However, it is still too early to tell what the 
effect of the new policies will be. The success of any set of policies 
will depend on adequate communication across the agency; internal 
controls to ensure they are implemented; and clear, strong, guidance 
from leadership on the importance of adhering to the new policies. 

Human Capital: 

A strategic human capital management approach enables an agency to 
recruit, develop, and retain the right number of personnel with the 
right skills to accomplish its mission effectively. Senior managers 
should devote adequate resources to recruiting, hiring, developing, 
rewarding, and retaining talented personnel. This is true for all 
functions within an agency and is crucial for specialized functions, 
such as acquisition. Succession planning also is needed to ensure that 
the workforce is composed of the right number of personnel with the 
necessary skills and qualifications to perform the acquisition function 
into the future. 

PBGC has begun to focus on developing the knowledge and skills of its 
Procurement Department staff. Having the right people with the right 
skills is key to making a successful transformation toward an effective 
acquisition environment. Over the last decade, the emergence of several 
procurement trends, including a government-wide rise in services 
contracting, has created a need for an acquisition workforce with a 
much greater knowledge of market conditions, industry trends, and the 
technical details of the commodities and services they procure. The 
Procurement Department has developed new training and certification 
requirements and invested in upgrading the skills of the acquisition 
workforce, by providing training to help contract specialists obtain 
certification. According to PBGC, while only 2 of 12 staff in the 
contract specialist series were certified in contracting as of February 
2007, by January 2008, 9 of the 12 staff had been certified. The 
Procurement Department also is working to enhance training and 
certification requirements for COTRs working throughout PBGC. 

While PBGC's contract spending has more than doubled since 2001, the 
number of staff in the Procurement Department has risen only by two FTE 
employees from 2001 to 2007. PBGC Procurement Department officials are 
concerned that their staff of nine certified contract specialists is 
not adequate to support the mission. In May 2007, the Procurement 
Department studied four comparable agencies to determine appropriate 
staffing levels for PBGC's Procurement Department. This study compared 
PBGC's contracting staff size, number of annual transactions, and value 
of annual transactions to those of the other four agencies. Although 
PBGC had 88 percent more transactions on average and 40 percent more 
contract dollars on average than the other four agencies, it had less 
than half the average number of contracting office staff. This study 
only focused on the Procurement Department and did not attempt to 
determine appropriate staffing levels for other acquisition 
professionals not assigned to the Procurement Department, such as 
program managers, financial managers, and individuals involved in 
contract monitoring. We did not conduct an independent assessment of 
this study to validate the study's results. 

Information and Knowledge Management: 

To make strategic, mission-focused acquisition decisions, organizations 
need knowledge and information management processes and systems that 
produce credible, reliable, and timely data about the goods and 
services acquired and the methods used to acquire them. Such data can 
be used to identify opportunities to reduce costs, improve service 
levels, measure compliance and performance, and manage service 
providers. 

PBGC's Procurement Department uses a variety of reports to oversee 
contract spending. Some reports come from the contract writing system 
while others are maintained manually. According to a PBGC official, the 
reports track how goods and services are acquired but do not provide 
detailed data on goods and services, as well as suppliers, and spending 
patterns. As a result, PBGC may not have the strategic information 
needed to support effective acquisition management decisions. In 

addition, PBGC's procurement software is not integrated into its 
financial system, which would allow contracting professionals to obtain 
real-time information on availability of funds, status of obligations 
and expenditures, and payments for the receipts of goods and services. 
PBGC's Procurement Department recently invested in new procurement 
software to better track acquisition data. In addition to generating 
reports on workload and procurement lead times, the new software links 
to the Federal Procurement Data System to report on PBGC's contract 
actions as required by the Office of Management and Budget (OMB). This 
system is able to produce some aggregate data, like dollars expended, 
but lacks detailed information on goods and services purchased. 

PBGC Has Not Yet Taken Steps to Develop Strategic Approach to 
Acquisition: 

PBGC has not yet taken all the steps needed to develop a strategic 
approach to acquisition. In 2000, we recommended that PBGC do so by 
conducting a comprehensive review of PBGC's future human capital needs 
and using this review to better link contracting decisions to PBGC's 
long-term strategic planning process. However, PBGC's strategic plans 
do not provide sufficient detail to determine what role acquisition 
plays in achieving its goals. In our work on best practices,[Footnote 
14] we learned that a strategic plan should incorporate an 
understanding of how acquisition will be used to help an agency achieve 
its mission and goals. This would enable PBGC to better coordinate 
current acquisition initiatives or serve as a road map for identifying 
or prioritizing future efforts. PBGC recently issued its strategic 
plan, but it is not comprehensive. Although the plan states that one of 
PBGC's strategic priorities is to align resources to meet changing 
workload demands and mentions flexible staffing as an indicator of 
efficient operations, it does not specify how this will be accomplished 
or what role contract staff will play. PBGC recently has hired a human 
resources specialist to coordinate and complete the planning process 
initiated in 2002 and update its human capital succession plan. PBGC 
also has drafted a strategic human capital plan that acknowledges the 
need for contract support, but does not provide detailed plans for how 
the contract support will be obtained. 

As stated earlier, NAPA provided a six-step model for PBGC to follow 
for its strategic human capital planning. In response, PBGC convened a 
workforce planning team that implemented some of NAPA's suggested 
steps. Although the workforce planning team acknowledged the importance 
of contract staff for meeting PBGC's unpredictable workloads, the 
team's analysis of PBGC's future workforce focused almost entirely on 
PBGC's federal employees and not its contractor workforce. The team 
recognized PBGC's need for improvement in the area of contracting, such 
as better defining where to use contractors versus federal employees, 
structuring the work to ensure that federal staff retain core 
competencies, and developing stronger COTR and contract monitoring 
competencies. While the team's 2002 report included an analysis of the 
current competencies of PBGC's federal workforce and PBGC's future 
needs, it did not similarly analyze the contractor workforce, which, at 
the time, made up almost half of PBGC's total workforce and now makes 
up almost two-thirds. The report did not address how the contractor 
workforce should change to meet future needs or how contractors should 
be utilized. Although the report included a discussion of recruitment 
and hiring strategies, it did not include an analysis of strategies for 
adding to or subtracting from the contractor workforce in case of 
increased or decreased workloads. 

Further, PBGC does not use its strategic annual performance plans to 
document how the acquisition function supports the agency's missions 
and goals. It is not clear how acquisition serves PBGC's mission, 
because metrics are not linked to PBGC's overall performance plan. 
While the procurement director has developed some metrics to measure 
the Procurement Department's workload, PBGC's strategic plan only has 
one broad metric related to measuring call center customer or 
participant satisfaction, but there is no specific metric that 
enumerates the level of customer service to be reached. Additionally, 
the strategic plan only has one broad metric related to performance- 
based contracting, but there are no specific metrics that relate to 
acquisition efficiency, effectiveness, and results, such as measures to 
track the number of contracts awarded that include incentives for 
performance. Performance measurements can be used to gain insight into 
the Procurement Department's current performance level and performance 
over time and set realistic goals for improvements to the acquisition 
process. 

Finally, PBGC has taken some limited steps toward making more strategic 
contracting decisions in certain specific areas. These steps generally 
were taken in reaction to concerns raised about existing contracts in 
an internal report and reports by us and the Office of the Inspector 
General. For example, the Inspector General and PBGC each studied the 
contracts for the field benefit administration offices and concluded 
that there were opportunities to increase efficiency and decrease 
costs. As a result, PBGC is recompeting the contracts in an effort to 
consolidate the number of field benefit administration offices. 

PBGC Has Made Improvements to Contractor Oversight, but Implementation 
of Performance-Based Contracting May Present Challenges: 

PBGC has made improvements to contractor oversight by implementing new 
contract monitoring activities, improving oversight activities for some 
of its major contracts, and developing comprehensive procedures to 
direct contracting activities. However, most of PBGC's current 
contracts lack performance incentives and methods to hold contractors 
accountable. PBGC recently began awarding more performance-based 
contracts, as a means to achieve better contract outcomes, but there 
are common challenges that arise--from deciding which contracts are 
appropriate for a performance-based approach to deciding which outcomes 
to measure and emphasize. PBGC procurement officials acknowledge the 
benefits and challenges of performance-based contracting, and must 
provide additional oversight of contracts and a different approach to 
contract monitoring that focuses on outcomes rather than processes. 

PBGC Has Made Some Improvements to Contractor Oversight: 

PBGC has improved upon existing contract monitoring activities and 
implemented new activities to strengthen contract oversight. In our 
2000 report,[Footnote 15] we recommended that PBGC develop the capacity 
to centrally monitor field benefit administration office contractor 
performance including product quality and timeliness. In response, PBGC 
shifted the responsibility for contract oversight of Benefits 
Administration and Payment Department (BAPD) contracts to its 
Management Coordination Unit (MCU),[Footnote 16] to consolidate its 
monitoring of field benefit administration office performance. The MCU 
uses several different methods to monitor contracts. 

* The MCU reviews the 10 field benefit administration office 
contractors annually to assess the accuracy of benefit determination 
letters and the security procedures in place and trains analysts in 
contract oversight to conduct field benefit administration office 
reviews. Following each review, the office receives a report that 
highlights findings and requires a corrective action plan to address 
deficiencies. 

* The MCU conducts quarterly COTR visits to the field benefit 
administration offices. During these visits, COTRs conduct interviews 
with key office staff and review the office's workplans and records. 
The MCU developed the COTR site visit program and a corresponding 
standard protocol to be used in conducting site visits. PBGC officials 
told us that, due to COTR work activities, not all site visits are 
being conducted as anticipated; only one to two are being conducted per 
office each year. 

* The MCU conducts monthly compliance and data integrity reviews of 
field benefit administration case processing activities. Results of 
these reviews are compiled into a scorecard that is reported quarterly 
to the office and the COTR. The scorecard measures BAPD processing 
goals for timeliness and quality. Noncompliant items are communicated 
to the offices monthly for resolution. Field benefit administration 
office contractors receive feedback on the timeliness and accuracy of 
benefit payments based on the MCU's monitoring efforts. 

To improve contract oversight, the Procurement Department also has 
implemented refresher training requirements for COTRs. PBGC provides 
guidance and training to COTRs regarding their duties and to ensure 
their compliance with Procurement Department policy, federal law, 
regulations and guidance, including the Federal Acquisition Regulation. 
PBGC is planning to comply with a November 2007, OMB Office of Federal 
Procurement Policy (OFPP) memorandum for training directed mainly at 
COTRs. The memorandum establishes a structured training program for 
COTRs and calls for standardization of competencies and training across 
civilian agencies. The mandate requires a minimum of 40 hours of 
training to be certified as a COTR. According to the requirements, new 
COTRs must be certified within 6 months of appointment and existing 
COTRs within a year. The Procurement Department will ensure that all 
COTRs have evidence of their certification, as required by the 
memorandum. 

PBGC recently improved its procedural guidance. In 2000, we found that 
PBGC lacked such guidance on contract oversight and a central location 
for guidance and procurement policies on contract oversight. Our report 
noted that due to the absence of specific procedures, staff spent 
significant time seeking guidance on issues, may have received 
conflicting directions, and contributed to inconsistent administration 
practices. Procurement Department officials recently completed a 
comprehensive procedural guidance manual for staff responsible for 
awarding contracts and monitoring contractor performance. According to 
Procurement Department officials, the new manual should eliminate the 
ad-hoc directives, e-mail, and stand-alone memorandums previously used 
to address concerns. The Procurement Department's new procedures manual 
provides uniform procedures for the internal operation of acquiring 
supplies and services within PBGC. The document represents a central 
repository for guidance and policies. The manual has been prepared in 
an electronic format, and includes relevant Internet links wherever 
external references are made, such as to OMB Circulars. 

PBGC's Move toward Performance-Based Contracting Can Add Accountability 
but May Present Challenges During Implementation: 

Performance-based contracting offers the government the potential for 
achieving better contract outcomes by requiring that all aspects of an 
acquisition be structured around the purpose of the work as opposed to 
the manner in which the work is to be performed. Contracts should 
include descriptions of the outcomes the agency is looking for rather 
than descriptions of how services should be performed, measurable 
performance standards, quality assurance plans that describe how the 
contractor's performance will be evaluated, and positive and negative 
incentives, when appropriate. However, our work has shown that the 
transition to and use of performance-based contracts has proven a 
challenge for government agencies deeply rooted in traditional methods 
of contracting. 

PBGC agreed with our 2000 recommendation that it utilize contracts and 
payment arrangements consistent with best practices in performance- 
based contracting. In 2001, OFPP directed government agencies to award 
contracts using performance-based techniques for at least 20 percent of 
service contracting dollars greater than $25,000 by fiscal year 2002. 
In 2003, OFPP recommended that executive agencies apply performance- 
based techniques to at least 40 percent of service contracting dollars 
greater than $25,000 by 2005. PBGC began altering its acquisition 
strategy to be in line with the government-wide move toward performance-
based contracting in 2003. However, PBGC to date has awarded less than 
$150 million in service contract dollars in fiscal year 2008 and 
remains short of OFPP's performance-based contracting goals.[Footnote 
17] According to PBGC officials, only six of its contracts currently 
are performance based, representing a yearly cost of approximately $30 
million for communication, administrative, and critical function 
services. PBGC is in the process of awarding an additional $20 million 
in performance-based contracts for the administration of the field 
benefit administration offices. Prior to the solicitation, these 
offices were contracted using individual labor-hour contracts. 
[Footnote 18] 

According to PBGC officials, most of PBGC's current contracts lack the 
methods to hold contractors accountable for their performance. One PBGC 
official said existing contracts neither include the incentives needed 
to encourage contractors to achieve desired results, nor do they 
include performance measures and targets. Instead, PBGC staff work 
directly with the contractor to communicate necessary targets. In the 
event that deliverables do not match contract descriptions or there is 
a problem with contractor performance, PBGC will work with the 
contractor to correct that problem. By not incorporating performance 
targets and other measures, PBGC depends on contractors who have 
limited incentive to provide optimal service. PBGC has the option not 
to renew a contract with a poorly performing contractor, but officials 
acknowledge the disadvantage it faces by not providing performance 
incentives to help hold contractors accountable. PBGC also has 
attempted to motivate contractors by considering assessments of the 
contractor's customer service as a part of future contract renewal and 
is planning to incorporate customer service measures into its contracts 
through the use of the American Customer Service Index.[Footnote 19] 
However, the index is not completely effective as an incentive 
mechanism because it does not report results for individual contractors 
and instead reports on contracts collectively. 

While it is important that PBGC incorporate strong performance 
incentives into its contracts, the transition to and use of performance-
based contracts has proven a challenge for agencies deeply-rooted in 
traditional methods of contracting. In a 2002 report, we highlighted 
challenges faced by agencies during their transition to performance-
based contracting.[Footnote 20] These challenges included the lack of 
understanding of performance-based contracting, lack of specific agency 
guidance, and inadequate oversight of contracts with performance-based 
methods. In addition, while PBGC has increased the amount of training 
provided to COTRs and others, the transition to performance-based 
contracting will require additional training, specific to the new 
contracting method. In 1998 guidance,[Footnote 21] OFPP called 
attention to the problems agencies face in converting from a 
traditional contract's statement of work to a performance-based work 
statement. Agencies reported to OFPP that performance work statements 
required an increased initial investment of time and resources. 
However, according to the OFPP guidance, the savings expected by 
performance-based contracting will offset such costs and correct 
problems commonly associated with service contracts--cost overruns, 
schedule delays, and technical challenges. 

Our prior work, and the work of others, also explains that both 
agencies and contractors typically find it difficult to move away from 
traditional contracting methods to a method of linking payments to 
performance, based on specific requirements that describe results and 
measurable standards of performance. Our prior work concluded that 
additional government guidance on performance-based contracting was 
needed to ensure its proper and effective use.[Footnote 22] PBGC 
officials recognize that PBGC may face challenges similar to those 
faced by other government agencies during implementation of performance-
based contracting. 

Conclusions: 

With three-quarters of its operational budget currently being spent on 
contracting, it is clear that acquisition plays a central role in 
achieving PBGC's strategic goals. While PBGC has made efforts to 
improve its acquisition infrastructure, it has not developed a 
strategic approach to its contracting process as envisioned in our 2000 
report. In its role as a support function, rather than a business 
partner, PBGC's Procurement Department is not involved in helping PBGC 
make strategic decisions about contracting early in the process or in 
developing long-term strategic approaches. PBGC developed its most 
recent strategic plan and strategic human capital plan, the latter 
still in draft, without a thorough examination of the role contracting 
plays at PBGC. By assessing the existing organizational alignment of 
the Procurement Department against a framework of best practices, PBGC 
may find that its Procurement Department is unable to effectively 
identify, analyze, prioritize, and coordinate agency-wide acquisition 
needs. Further, PBGC's workload depends on future economic conditions 
that are difficult to predict. Without a strategic acquisition 
approach, PBGC risks being unprepared for future workload changes and 
cannot be assured that it has the optimal mix of contractor staff and 
federal employees. 

Since our last report, PBGC also has made meaningful improvements to 
its contract oversight. To continue contracting improvements, PBGC's 
focus on performance-based contracting is growing--providing additional 
tools to hold contractors accountable for performance and to encourage 
the achievement of desired outcomes. However, this contracting method 
requires a new approach to contract oversight and has demonstrated the 
need for comprehensive training and organizational culture changes. 
PBGC will likely face challenges similar to those we have seen faced by 
other agencies that have moved toward performance-based contracting. 
PBGC needs to be aware of the common pitfalls other agencies have faced 
and take steps now to avoid the same challenges. 

Recommendations for Executive Action: 

To improve PBGC's performance in an environment of heavy contractor 
use, we recommend that the Director of PBGC revise its strategic plan 
and, in drafting the corporation's human capital strategic plan, 
reflect the importance of contracting and PBGC's use of contractors, 
project its vision of future contractor use, and better link staffing 
and contracting decisions at the corporate level. In drafting the plan, 
the Director of PBGC should do the following: 

* Include the Procurement Department in agency-wide strategic planning. 

* Ensure that the Procurement Director sits on PBGC's three strategic 
teams--the Operations Integration Board, the Budget and Planning 
Integration Team, and the Capital Planning for Information Technology 
Team. 

* Broaden the Procurement Department's May 2007 staffing study to 
include as part of PBGC's agency-wide acquisition workforce those 
positions outside of the Procurement Department that have a significant 
impact on procurement outcomes (i.e., requirements staff, program 
managers, financial managers, and individuals involved in contract 
monitoring). The study should determine appropriate staffing levels for 
these positions as the May 2007 study did for Procurement Department 
staff. 

* Include in PBGC's human capital plan detailed plans for how contract 
support will be obtained. 

* Assess PBGC's contract information to determine if additional 
information is needed to support strategic acquisition management 
decisions. This could include more complete information on goods and 
services purchased, as well as suppliers and spending patterns. In 
addition, contract spending information should be integrated into 
PBGC's financial system, to allow acquisition staff to obtain real-time 
information on the availability of funds, status of obligations and 
expenditures, and payments for the receipt of goods and services. 

* Develop metrics for PBGC's annual performance plan that document how 
the acquisition function supports PBGC's missions and goals. These 
could include metrics related to acquisition efficiency and customer 
satisfaction. 

To improve PBGC's contract management as it implements a performance- 
based approach to contracting, we recommend that the Director of PBGC: 

* provide comprehensive training on performance-based contracting for 
PBGC's Procurement Department staff, managers, and acquisition-related 
workforce; 

* develop practices to help ensure accountability for the Procurement 
Department staff carrying out contract monitoring responsibilities; 
and: 

* ensure that future contracts measure performance in terms of 
outcomes, provide incentives for the accomplishment of desired 
outcomes, and ensure payment of award fees only for excellent 
performance. 

Agency Comments and Our Evaluation: 

We obtained written comments on a draft of this report from PBGC, which 
are reproduced in appendix II. In addition, we provided a copy of the 
draft report to the Department of Labor for its comments, but Labor did 
not provide comments. 

In response to our draft report, PBGC's Director stated PBGC's 
commitment to managing its contracting activities to obtain the best 
value for the 44 million beneficiaries of its insurance program. PBGC 
agreed with most of our recommendations and mentioned various ways it 
planned to address them. For example, PBGC stated it understood that 
other government agencies have faced challenges in implementing 
performance-based contracting and plans to take steps to avoid common 
pitfalls. PBGC also stated that it will be conducting a comprehensive 
review of necessary staffing levels across the agency related to 
procurement functions and future contracting needs, consistent with our 
recommendation. 

While PBGC agreed that contracting should be part of its strategic 
planning process, it disagreed with our recommendation to reflect the 
importance of contracting and incorporate its vision for future 
contractor use into its strategic planning documents. In its comments, 
PBGC maintained that its recently issued strategic plan reflects the 
importance of contracting and its vision for future use. 

However, we continue to believe that PBGC's recently issued strategic 
plan is not sufficiently comprehensive. PBGC's strategic plan only 
briefly mentions performance-based contracting, flexible staffing and 
metrics for specific contracts, and therefore does not fully reflect 
the importance of contracting in achieving its mission. For example, 
among eight "strategic priorities," contracting is not mentioned. While 
the plan does state that PBGC will implement performance-based 
contracting for vendors in an effort to provide good customer service 
to stakeholders, it does not provide measurable goals for converting 
certain contracts or any time frames for implementation. Where the plan 
mentions using the American Customer Service Index as an indicator, it 
does not provide any detail on how it will use the index, what its 
performance goals are, and how it will measure success. In addition, 
the plan lacks certain key attributes of successful performance 
measures, such as measurable targets with numerical goals, and it does 
not include the activities that its acquisition function is expected to 
perform to support the intent of PBGC's acquisition program. 

PBGC also disagreed with our recommendation that its Director of 
Procurement should sit on certain specific corporate committees. We 
believe that PBGC's Procurement Director should be included on each of 
the corporation's three strategic teams. In its comments, PBGC stated 
that its Chief Management Officer represents contracting on these 
teams, and that there are greater gains to be realized by emphasizing 
executive-level awareness of procurement issues in decision making than 
by requiring the Procurement Director to sit on the three committees. 
While we appreciate PBGC's position that executives should be aware of 
procurement issues in their strategic decision making, because PBGC 
relies to such a great extent on contracting, it is critical that its 
Procurement Director be more involved in the corporation's strategic 
planning efforts. In addition to the Procurement Department, the Chief 
Management Officer currently oversees several additional functions, 
such as the Budget Department and the Human Resources Department, each 
vitally important to PBGC, and each with its own challenges. It is 
essential that an individual well-versed in procurement operations be 
more integrated into PBGC's planning for the future. 

As agreed with your staff, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
after its issue date. At that time, we will send copies of this report 
to the Secretary of Labor and to the Director of PBGC and other 
interested parties. We will also make copies available to others upon 
request. In addition, the report will be available at no charge on the 
GAO Web site at [hyperlink, http://www.gao.gov]. If you or your staff 
have any questions concerning this report, please contact me at (202) 
512-7215 or [email protected]. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made key contributions to this 
report are listed in appendix III. 

Signed by: 

Barbara D. Bovbjerg: 
Director, Education, Workforce, and Income Security Issues: 

[End of section] 

Appendix I: Scope and Methodology: 

To assess the role contracting plays in the Pension Benefit Guaranty 
Corporation's (PBGC) efforts to accomplish its mission, we collected 
and analyzed data on PBGC contracting activities, as well as on 
participants, plans, employees, and budget trends. We also collected 
data to identify trends regarding how PBGC has relied on contractors to 
conduct its work. To do this, we reviewed contracting data from fiscal 
years 2000 through 2007. We determined that PBGC's data were 
sufficiently reliable for the purposes of this report. 

To assess the steps PBGC has taken to improve its acquisition 
infrastructure and develop a strategic approach, we compared PBGC's 
acquisition infrastructure to standards outlined in GAO's acquisition 
framework.[Footnote 23] Use of the framework enabled us to conduct a 
high-level, qualitative assessments of the strengths and weaknesses of 
PBGC's contracting function. Specifically, we evaluated PBGC's 
acquisition infrastructure in four key areas--organizational alignment 
and leadership, policies and procedures, human capital, and information 
management. We also reviewed prior GAO work on best practices in 
strategic approaches to the contracting and compared PBGC's current 
operations to best practices. 

To identify the strategies that PBGC uses to monitor contracts, we 
reviewed applicable laws, regulations, policies and guidance regarding 
contract management at PBGC. Specifically, we reviewed OFPP guidance 
related to performance-based contracting to understand PBGC's adherence 
with federal policy on the subject. We also conducted a contract file 
review of six contract files to assess file fitness and completeness 
along with monitoring and oversight improvements. To assess the steps 
PBGC has taken to improve its contract oversight processes to ensure 
accountability, we reviewed our findings from our 2000 report and 
followed up on improvements PBGC has made since then to its contract 
monitoring procedures. For each objective, we interviewed PBGC senior 
executives, managers, and programming and contracting staff at 
headquarters, as well as selected contractors. We also interviewed 
officials from PBGC's Office of Inspector General and reviewed relevant 
Inspector General reports. 

We conducted this performance audit from May 2007 to August 2008, 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. 

[End of section] 

Appendix II: Comments from the Pension Benefit Guaranty Corporation: 

PBGC: 
Pension Benefit Guaranty Corporation: 
Protecting America's Pensions: 
Office of the Director: 
1200 K Street, N.W. 
Washington, D.C. 20005-4026: 

July 24, 2008: 

Ms. Barbara Bovbjerg, Director: 
Education, Workforce, and Income Security Issues: 
Government Accountability Office: 
441 G Street, N.W. 
Washington, D.C. 20548: 

Dear Ms. Bovbjerg: 

Thank you for the opportunity to comment on the Government 
Accountability Office (GAO) draft report, "Some Steps Have Been Taken 
to Improve Contracting, but a More Strategic Approach is Needed." 
Contracting plays an important role in enabling PBGC to carry out its 
mission and address unpredictable workloads due to changing economic 
conditions. PBGC is committed to managing its contracting activities to 
obtain the best value for the 44 million beneficiaries of its insurance 
program. We appreciate GAO's recognition that, since its last report, 
PBGC has made meaningful improvements to its contract oversight. As the 
draft report notes, PBGC has implemented new contract monitoring 
activities, improved oversight for some of its major contracts, 
developed comprehensive procedures to direct contracting activities, 
and has begun to implement performance-based contracting. 

PBGC appreciates that the focus of the report is not only on the role 
of contracting in accomplishing our mission, but also on the 
improvements here at PBGC in our acquisition infrastructure, our 
strategic approach, and our oversight processes to ensure 
accountability. The report nicely catalogs the progress made on several 
fronts in PBGC contracting in recent years. In improving our 
infrastructure, it notes our steps to realign the Procurement 
Department (PD), our updating of policies and processes, our upgrading 
of PD staff skills, and our better tracking of contracting data. The 
report also underscores advances in our contractor oversight, pointing 
to the centralized monitoring of field offices, PD's new procedures 
manual, and our new training for the certification of Contracting 
Officer's Technical Representatives (COTRs). 

We agree with GAO that the role of contracting should be part of PBGC's 
strategic planning process, and we are comfortable that it is 
meaningfully integrated into the process. We disagree with GAO's 
statement that our strategic plan is not sufficiently comprehensive. 
PBGC's recently-issued Strategic Plan for 2008-2013 includes goals and 
objectives for performance-based contracting, flexible staffing and a 
strategic human capital plan, as well as metrics for major contracting 
activities such as the customer call center. Our strategic plan thus 
reflects the importance of contracting and PBGC's vision for its use in 
the future; further detail on specific implementing activities is 
properly reflected in our executives' performance plans, all of which 
link to the strategic plan. Each member of PBGC's senior leadership, 
including the Director of the Procurement Department, is closely 
involved in the strategic planning process. This includes participation 
in the annual senior-level strategic planning meeting, opportunities to 
provide input to agency goals and objectives, and reviewing draft 
versions of the strategic plan. 

Contracting is an important element in the planning activities of all 
major offices of PBGC, supported by the office of the Chief Management 
Officer (CMO), where the Corporation's contracting authority resides. 
Representatives of all executive offices, including the CMO, sit on the 
major budget and planning committees of the Corporation -- the Capital 
Planning for Investment Technology committee (CPIT), the Budget 
Planning and Integration Team (BPIT) and the Operations Integration 
Board (OIB). For example, the CMO chairs the OIB; the Director of the 
Budget Department chairs the BPIT, and the Director of Strategic 
Planning is a member of the CPIT. Contracting issues arising from these 
groups are coordinated as part of regular CMO staff meetings. Further, 
the Director of the Procurement Department joins these groups on an as-
needed basis, providing valuable input into corporate decisions which 
will impact PBGC's short-term and long-term contracting plans. We 
believe there are greater gains to be realized by continuing to 
emphasize executive-level awareness of procurement issues in decision-
making than by requiring the Director of Procurement Department to sit 
on specific corporate committees as the draft report recommends. 

As part of the human capital strategic planning process currently under 
way at PBGC, we will be conducting a comprehensive review of necessary 
staffing levels across the agency relating to procurement functions and 
future contracting needs, consistent with the recommendation contained 
in GAO's recent report on PBGC's human capital management. With regard 
to Procurement Department staffing, we note that, in June 2008, the 
Procurement Department was authorized three additional staff beginning 
in FY 2009. 

We will assess existing contract information to determine whether 
additional information is needed to support strategic acquisition 
management decisions. However, we note that our existing financial 
systems provide extensive information on contract spending, including 
availability of funds, status of obligations and expenditures, and 
payments for the receipts of goods and services. Reports by contract 
are regularly made available to COTRs, and we will ensure that 
Procurement Department staff has ready access to this information as 
well. 

With regard to the recommendation to develop additional procurement 
metrics, PBGC currently has metrics relating to contracting performance 
in individual performance plans of senior executives with major 
contracting projects, as well as in those of the Procurement Department 
employees. The Procurement Department also has an automated customer 
service questionnaire, which reflects a current customer satisfaction 
rate of 88 percent. PBGC will review whether these measures can be 
incorporated into the annual performance budget (which replaced the 
annual performance report pursuant to OMB Circular A-11) to document 
how the acquisition function supports PBGC's missions and goals, 
consistent with GAO's recommendation. 

We agree with GAO's recommendations to enhance our implementation of 
performance-based contracting, specifically with respect to 
comprehensive training for PBGC staff, accountability for Procurement 
Department oversight, and incorporating performance-based measures into 
our future contracts. In fact, such efforts are already underway. For 
example, during this past year, 46 employees completed training on 
developing performance-based statements of work at PBGC's Training 
Institute. Procurement Department staff work closely with departmental 
representatives to ensure that statements of work and resulting 
contracts are properly structured to achieve the desired outcomes. 
Further, the Procurement Department is currently performing reviews of 
COTR files to ensure that proper contract monitoring is occurring. 
Lastly, the use of labor-hour contracts has been restricted and 
requires formal approval by the Director of the Procurement Department. 

We understand that other government agencies have faced challenges in 
the implementation of performance-based contracting, and agree with GAO 
that PBGC needs to be aware of these common pitfalls and take steps now 
to avoid them. In that vein, it is important to note that until 
training and oversight are fully implemented, measuring success solely 
by the number of dollars or contracts denominated "performance-based" 
can be misleading. As we have learned from the experience of other 
government agencies, the structure first must be in place to support 
the implementation of performance-based measures. We believe success 
will be shown when we have training and oversight in place that enables 
us to achieve the results set forth in our major performance-based 
contracts. This must be done in addition to measuring the percentage of 
contract dollars devoted to contracts containing performance measures. 

PBGC is committed to continuing to improve the performance of its 
contracting function to deliver the excellent results its beneficiaries 
deserve. We appreciate your attention to this important topic and look 
forward to sharing the results of our progress with you in the future. 

Sincerely, 

Signed by: 

Charles E. F. Millard: 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Barbara Bovbjerg (202) 512-7215 or [email protected]: 

Staff Acknowledgments: 

The following team members made key contributions to this report: Blake 
Ainsworth, Assistant Director; Lara Laufer and Monika Gomez, Analysts- 
in-Charge; Jeffrey Bernstein; Susannah Compton; Jena Sinkfield; Najeema 
Washington; and Craig Winslow. 

[End of section] 

Related GAO Products: 

Pension Benefit Guaranty Corporation: Governance Structure Needs 
Improvements to Ensure Policy Direction and Oversight. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-07-808]. Washington, D.C.: July 
6, 2007. 

High-Risk Series: An Update. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-07-310]. Washington, D.C.: January 2007. 

Framework for Assessing the Acquisition Function at Federal Agencies. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-218G]. Washington, 
D.C.: September 2005. 

Private Pensions: The Pension Benefit Guaranty Corporation and Long- 
Term Budgetary Challenge. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-05-772T]. Washington, D.C.: June 9, 2005. 

Contract Management: Opportunities to Improve Surveillance on 
Department of Defense Service Contracts. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-05-274]. Washington, D.C.: March 
17, 2005. 

Federal Procurement: Spending and Workforce Trends. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-03-443]. Washington, D.C.: April 
30, 2003. 

Contract Management: Guidance Needed for Using Performance-Based 
Service Contracting. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-
02-1049]. Washington, D.C.: September 23, 2002. 

Best Practices: Taking a Strategic Approach Could Improve DOD's 
Acquisition of Services. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-02-230]. Washington, D.C.: January 18, 2002. 

Pension Benefit Guaranty Corporation: Appearance of Improper Influence 
in Certain Contract Awards. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?T-OSI-00-17]. Washington, D.C.: September 21, 2000. 

Pension Benefit Guaranty Corporation: Contract Management Needs 
Improvement. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?T-HEHS-00-
199]. Washington, D.C.: September 21, 2000. 

Pension Benefit Guaranty Corporation: Contracting Management Needs 
Improvement. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-00-
130]. Washington, D.C.: September 18, 2000. 

High-Risk Series: An Overview. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/HR-95-1]. Washington, D.C.: February 1, 1995. 

High-Risk Series: Pension Benefit Guaranty Corporation. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO/HR-93-5]. Washington, D.C.: 
December 1, 1992. 

Related PBGC Inspector General Reports: 

Trend Analysis Report: PBGC Procurement Issues From 2000-2007, 2007-6/ 
CA-0036. Washington, D.C., July 26, 2007. 

Evaluation of the Field Benefits Administration Concept, 2004-9/23178. 
Washington, D.C., April 30, 2004. 

[End of section] 

Footnotes: 

[1] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-07-310] (Washington, D.C.: 
January 2007). In 1992, we placed PBGC on our list of federal programs 
at high risk because a large and growing imbalance between its assets 
and liabilities threatened its long-term financial viability. GAO, High-
Risk Series: Pension Benefit Guaranty Corporation, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO/HR-93-5] (Washington, D.C.: 
December 1992). To address PBGC's financial problems, Congress passed 
the Retirement Protection Act in 1994, which strengthened minimum 
funding requirements for plans and increased premiums paid to PBGC by 
underfunded plans (Pub. L. No. 103-465, 108 Stat. 4809). In addition, 
PBGC improved administration of its insurance programs. Consequently, 
we removed PBGC from our high-risk list in 1995. GAO, High-Risk Series: 
An Overview, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HR-95-1] 
(Washington, D.C.: February 1995). GAO again added PBGC's single 
employer insurance program to its high-risk series in July 2003. GAO, 
Private Pensions: The Pension Benefit Guaranty Corporation and Long-
Term Budgetary Challenges, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-05-772T] (Washington, D.C.: June 9, 2005). 

[2] GAO, Pension Benefit Guaranty Corporation: Contracting Management 
Needs Improvement, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/HEHS-00-130] (Washington, D.C.: Sept. 18, 2000). 

[3] A COTR is an individual assigned to a contract to evaluate 
contractor performance based on their technical background and 
experience. The COTR uses meetings, physical observations, and reports 
to ensure that work is performed in compliance with contract 
requirements. The COTR makes many decisions or recommendations about 
the daily administration of the contract, and the contracting officer 
relies on the COTR's judgment in the areas of inspection, payment 
approval, and providing recommendations on problems that arise. 

[4] Pub. L. No. 93-406, 88 Stat. 829. 

[5] Both PBGC employees and contractor employees are involved in 
performing aspects of ongoing administration for closed plans. 

[6] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-00-130]. 

[7] PBGC-Office of the Inspector General (OIG), Trend Analysis Report: 
PBGC Procurement Issues From 2000-2007, 2007-6/CA-0036 (Washington, 
D.C., July 26, 2007). 

[8] GAO, Framework for Assessing the Acquisition Function at Federal 
Agencies, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-218G] 
(Washington, D.C.: Sept. 2005). 

[9] 41 U.S.C. ï¿½ 414. 

[10] GAO, Federal Procurement: Spending and Workforce Trends, 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-443] (Washington, 
D.C.: Apr. 30, 2003). 

[11] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-218G]. 

[12] GAO, Best Practices: Taking a Strategic Approach Could Improve 
DOD's Acquisition of Services, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-02-230] (Washington, D.C.: Jan. 18, 2002). 

[13] Services Acquisition Reform Act of 2003, tit. XIV, Pub.L. No. 108- 
136, ï¿½ 1421, 117 Stat. 1663, 1666-67 (2003). PBGC is not required to 
appoint a chief acquisition officer. 

[14] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-230]. 

[15] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-00-130]. 

[16] BAPD is the office within PBGC with the highest number of 
contracts and contract spending. This division manages the termination 
process for defined benefit plans, provides participant services for 
terminated plans, and provides actuarial support for PBGC, whose 
contracts represent approximately 37 percent of contracting activities 
at PBGC. 

[17] An OFPP official told us that PBGC may follow these guidelines, 
but it is not required to do so. A PBGC official responded that the 
corporation is required to adhere to guidance when it applies to small 
agencies. According to the PBGC official, in response to this guidance 
and OFPP goals, only about 13 percent of PBGC's eligible contracts are 
performance based, although it anticipates additional performance- 
based awards during the remainder of the fiscal year. 

[18] Labor-hour contracts provide for payment of contractors at hourly 
rates for the number of hours worked. In general, labor-hour contracts 
require detailed reviews of the hours charged by contract staff and 
close monitoring by the contracting entity to ensure that quality and 
timeliness requirements are met. 

[19] [9] The American Customer Service Index is used to measure 
customer satisfaction in the public and private sector. PBGC's first 
year of participation was 2001, which is considered the benchmark year. 
In that first year, the index measured the satisfaction of plan 
participants. Since that time, PBGC has used the index to measure 
customer service performance of contractors that provide services to 
Web users and retirees on behalf of PBGC. 

[20] GAO, Contract Management: Guidance Needed for Using Performance- 
Based Service Contracting, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-02-1049] (Washington, D.C.: Sept. 23, 2002). The 
agencies we reviewed included the Departments of Defense, Treasury, 
Energy, the National Aeronautics and Space Administration, and the 
General Services Administration. 

[21] A Guide to Best Practices for Performance Based Contracting, 
Office of Federal Procurement Policy, Office of Management and Budget, 
Final Edition 1998. 

[22] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-1049]. 

[23] GAO, Framework for Assessing the Acquisition Function at Federal 
Agencies, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-218G] 
(Washington, D.C.: Sept. 2005). PBGC-OIG, Trend Analysis Report: PBGC 
Procurement Issues From 2000-2007, 2007-6/CA-0036 (Washington, D.C., 
July 26, 2007). 

[End of section] 

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