Acquisition Management: Workforce Reductions and Contractor Oversight
(Letter Report, 07/31/98, GAO/NSIAD-98-127).

Pursuant to a congressional request, GAO: (1) compared the workforce
reductions taken in the Department of Defense's (DOD) acquisition
organizations from fiscal year (FY) 1993 through FY 1997 with the
reductions taken in DOD's overall workforce during that timeframe; and
(2) identified initiatives the Defense Contract Audit Agency (DCAA) and
the Defense Contract Management Command (DCMC) have taken in their
contract oversight responsibilities to compensate for the reduction in
their staff.

GAO noted that: (1) DOD's acquisition workforce is decreasing slightly
faster than DOD's overall workforce; (2) from FY 1993 through FY 1997,
the number of personnel in DOD's overall workforce decreased by 17.5
percent; (3) during the same timeframe, civilian personnel in DOD's
acquisition workforce decreased by 24 percent, while the military
personnel in the acquisition workforce decreased by 28 percent; (4)
throughout this 5-year period, DOD's civilian acquisition workforce
remained at roughly 30 percent of DOD's overall civilian workforce; (5)
since 1993, the two organizations directly associated with contractor
oversight, DCAA and DCMC, have had personnel reductions of roughly 19
and 27 percent, respectively; and (6) according to DCAA and DCMC
officials, the organizations have implemented a variety of risk-based
initiatives and reengineering programs during this timeframe as their
respective workforces have been reduced.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-98-127
     TITLE:  Acquisition Management: Workforce Reductions and Contractor 
             Oversight
      DATE:  07/31/98
   SUBJECT:  Civilian employees
             Military downsizing
             Military personnel
             Reductions in force
             Defense procurement
             Reengineering (management)

             
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Cover
================================================================ COVER


Report to the Honorable
Tom Harkin, U.S.  Senate

July 1998

ACQUISITION MANAGEMENT - WORKFORCE
REDUCTIONS AND CONTRACTOR
OVERSIGHT

GAO/NSIAD-98-127

Workforce Reductions

(707333)


Abbreviations
=============================================================== ABBREV

  DCAA - Defense Contract Audit Agency
  DCMC - Defense Contract Management Command
  DOD - Department of Defense

Letter
=============================================================== LETTER


B-279516

July 31, 1998

The Honorable Tom Harkin
United States Senate

Dear Senator Harkin: 

In response to your request, we (1) compared the workforce reductions
taken in the Department of Defense's (DOD) acquisition
organizations\1 from fiscal year 1993 through fiscal year 1997 with
the reductions taken in DOD's overall workforce during that time
frame and (2) identified initiatives the Defense Contract Audit
Agency (DCAA) and the Defense Contract Management Command (DCMC) have
taken in their contract oversight responsibilities to compensate for
the reduction in their staff.  We briefed your office previously. 
This report updates the information presented at those briefings. 
Additional information requested by your office regarding reductions
in the number of computer specialists is contained in appendix II. 
We provided information that you requested regarding potential
savings from workforce reductions in our June 1998 report.\2


--------------------
\1 DOD's 20 acquisition organizations employed roughly 270,000
civilian and military acquisition personnel at the end of fiscal year
1997 (see app.  I for a complete list of these organizations).  This
total excludes civilians employed in maintenance depots, who are not
included in the workforce reductions required by the National Defense
Authorization Act for Fiscal Year 1998.  Including these employees
would increase the total to about 355,000. 

\2 See Defense Acquisition Organizations:  Status of Workforce
Reductions (GAO/NSIAD-98-161, June 29, 1998). 


   BACKGROUND
------------------------------------------------------------ Letter :1

In recent years, DOD has substantially reduced the size of its total
and acquisition workforces.  Many of these reductions were made
pursuant to the National Defense Authorization Acts for Fiscal Years
1996 and 1997 (P.L.  104-106 and P.L.  104-201, respectively).  Among
other things, section 906 of the 1996 act required DOD to submit a
plan on how it would restructure its acquisition organizations so
that 25 percent of their personnel could be reduced over a 5-year
period, beginning October 1, 1995.  Section 902 of the 1997 act
amended section 906 to require total reductions of 30,000 employees
in fiscal years 1996 and 1997 combined.  In addition, section 912 of
the National Defense Authorization Act for Fiscal Year 1998 (P.L. 
105-85) required a reduction of 25,000 employees in fiscal year 1998. 
The act allowed the Secretary of Defense to reduce as few as 10,000
employees on certification that cost-effective management and
military readiness would be impaired.  The Federal Workforce
Restructuring Act of 1994, passed in March 1994 and mandating
governmentwide reductions of 272,900 full-time equivalent positions
through fiscal year 1999, also affected DOD's acquisition workforce. 
DOD agencies responsible for contractor oversight, DCAA and DCMC,
were not exempted from these reductions. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

DOD's acquisition workforce is decreasing slightly faster than DOD's
overall workforce.  From fiscal year 1993 through fiscal year 1997,
the number of personnel in DOD's overall workforce decreased by 17.5
percent.  During the same time frame, civilian personnel in DOD's
acquisition workforce decreased by 24 percent, while the military
personnel in the acquisition workforce decreased by 28 percent. 
Throughout this 5-year period, DOD's civilian acquisition workforce
remained at roughly 30 percent of DOD's overall civilian workforce. 

Since 1993, the two organizations directly associated with contractor
oversight, DCAA and DCMC, have had personnel reductions of roughly 19
and 27 percent, respectively.  According to DCAA and DCMC officials,
the organizations have implemented a variety of risk-based
initiatives and reengineering programs during this time frame as
their respective workforces have been reduced.  For example, DCAA has
implemented risk assessment procedures based on contractor size (the
dollar value of contracts) and process reengineering activities in
the areas of contractor self-governance and contractor billing. 
Similarly, DCMC has instituted risk-based initiatives and initiatives
aimed at improving efficiency.  For example, DCMC's Performance-Based
Assessment Model determines how often and to what extent contractors
should be reviewed based on risk potential; the Single Process
Initiative encourages the consolidation of common processes in
facilities that produce commercial and DOD products. 


   DOD'S ACQUISITION WORKFORCE IS
   DECREASING
------------------------------------------------------------ Letter :3

From fiscal year 1993 through fiscal year 1997, DOD has reduced
steadily the number of authorized positions and the actual number of
personnel in its workforce.  During this period, DOD's acquisition
workforce was reduced at a slightly faster rate than DOD's overall
workforce, but civilians in the acquisition workforce remained at
roughly 30 percent of DOD's overall civilian workforce. 


      DOD HAS STEADILY REDUCED THE
      SIZE OF ITS OVERALL
      WORKFORCE
---------------------------------------------------------- Letter :3.1

Both DOD's authorized positions and the number of personnel employed
have decreased steadily since fiscal year 1993 (see fig.  1).\3 For
example, between fiscal years 1993 and 1997, the number of authorized
positions decreased from 3,746,900 to 3,126,600 (by 620,300 or 16.6
percent) while the number of employees decreased from 3,718,400 to
3,068,700 (by 649,700 or 17.5 percent).  By breaking these numbers
down, we found that civilian and military positions were reduced by
198,300 (20.2 percent) and 422,000 (15.3 percent), respectively;
while the number of civilian and military employees were reduced by
187,300 (20.3 percent) and 462,400 (16.5 percent), respectively. 

   Figure 1:  DOD's Overall
   Workforce (Fiscal Years
   1993-97)

   (See figure in printed
   edition.)

Sources:  Office of the Secretary of Defense (Personnel & Readiness)
and Defense Manpower Data Center. 


--------------------
\3 DOD's "authorized positions" refers to its annual workload
requirement presented in the President's annual budget submission. 
DOD's "actual end strength" is the number of people employed at the
end of a particular period. 


      DOD'S ACQUISITION WORKFORCE
      HAS EXPERIENCED SLIGHTLY
      GREATER REDUCTIONS THAN
      DOD'S OVERALL WORKFORCE
---------------------------------------------------------- Letter :3.2

From fiscal year 1993 through fiscal year 1997, DOD reduced the
overall number of its employees by 649,700 (or 17.5 percent).  During
this period, DOD reduced the civilian and military personnel employed
in acquisition organizations by 70,552 (about 24 percent) and 18,338
(about 28 percent), respectively (see fig.  2). 

   Figure 2:  DOD's Acquisition
   Workforce (Fiscal Years
   1993-97)

   (See figure in printed
   edition.)

Note:  Data excludes civilians in maintenance depots in accordance
with section 912 of the 1998 Defense Authorization Act. 

Source:  Defense Manpower Data Center. 

During fiscal years 1996 and 1997, DOD accomplished over one-half of
the 25-percent reduction planned for its acquisition workforce
pursuant to the 1996 National Defense Authorization Act.  DOD does
not expect to maintain this rate of acquisition workforce reduction
throughout the next 3 years. 

Our analysis of data provided by the Defense Manpower Data Center
shows that DOD's civilian acquisition workforce represents roughly 30
percent of DOD's overall civilian workforce (see fig.  3).  This
ratio has remained relatively steady throughout the 5-year period. 
For example, it was at 31.8 percent in 1993 and at 30.3 percent in
1997. 

   Figure 3:  DOD's Civilian
   Acquisition Workforce Compared
   with DOD's Total Civilian
   Workforce (Fiscal Years
   1993-97)

   (See figure in printed
   edition.)

Note:  Data excludes civilians in maintenance depots in accordance
with section 912 of the 1998 Defense Authorization Act. 

Source:  Defense Manpower Data Center. 


   CONTRACTOR OVERSIGHT AGENCIES
   ARE IMPLEMENTING RISK
   MANAGEMENT APPROACHES
------------------------------------------------------------ Letter :4

The workforces of DCAA, which performs defense contract audits and
provides accounting and financial advisory services, and DCMC, which
provides defense contract management services, have also been reduced
substantially over recent years.  At the same time, DOD has
implemented various risk management approaches in the oversight of
contractors.. 


         DCAA WORKFORCE TRENDS
-------------------------------------------------------- Letter :4.0.1

DCAA is responsible for performing contract audits and providing
accounting and financial advisory services on contracts for all DOD
components responsible for procurement and contract administration. 
DCAA reports to the Under Secretary of Defense (Comptroller).  DCAA's
actual end strength decreased from 5,616 in fiscal year 1993 to 4,557
in fiscal year 1997, about a 19-percent reduction (see fig.  4). 

   Figure 4:  Decrease in DCAA's
   Actual Workforce (Fiscal Years
   1993-97)

   (See figure in printed
   edition.)

Note:  Totals are in actual end strength. 

Source:  DCAA. 

DCAA projects continued work year reductions through fiscal year
2002. 


      KEY DCAA RISK MANAGEMENT AND
      PROCESS REENGINEERING
      ACTIVITIES
---------------------------------------------------------- Letter :4.1

According to DCAA officials, in response to workforce reductions and
acquisition reform initiatives, DCAA focused its efforts on
implementing risk assessment procedures and process reengineering
activities.  For example, DCAA established risk assessment procedures
for three categories of contractors: 

  -- Major contractors.  These contractors (roughly 250) have over
     $70 million in DOD contracts.  DCAA assesses them on their
     internal controls for such business systems as compensation,
     billing, labor, material, and purchasing.  DCAA reviews and
     rates all major contractors at least once a year. 

  -- Non-major contractors.  These contractors (roughly 1,750) have
     between $5 and $70 million in DOD contracts.  DCAA assesses them
     on an "as-needed basis." According to DCAA officials, risk
     factors such as evidence of budgetary control and indications of
     financial instability are used as criteria for determining the
     need for assessment. 

  -- Small contractors.  These contractors (roughly 2,000) have less
     than $5 million in DOD contracts.  They are assessed based on a
     random sample. 

DCAA has also implemented process reengineering activities intended
to improve the efficiency of its workforce, including the following: 

  -- Integrated product teams.  These teams are composed of DCAA and
     contractor personnel through which DCAA provides real-time
     advice and feedback on estimating methods, proposal reviews, and
     audit results. 

  -- Contractor self-governance.  These programs are designed to
     strengthen contractor internal controls and the government's
     reliance on related systems.  These programs also promote
     reduced audit cycle time, reduced oversight, and improved
     communications and working relationships between DCAA and
     contractor personnel. 

  -- Contractor direct billing.  This program allows qualified
     contractors to submit public vouchers directly to paying offices
     rather than through DCAA.  While DCAA will continue provide
     oversight by periodically reviewing contractors and examining a
     sampling of paid vouchers, this program is expected to
     substantially reduce audit time without putting accountability
     at risk. 


      DCMC WORKFORCE TRENDS
---------------------------------------------------------- Letter :4.2

DCMC provides contract management services for DOD contracting
officers and program managers throughout the acquisition life cycle. 
DCMC is under the organizational umbrella of the Defense Logistics
Agency.  DCMC's actual end strength decreased from 19,822 in fiscal
year 1993 to 14,523 in fiscal year 1997, about a 27-percent reduction
(see fig.  5). 

   Figure 5:  Decrease in DCMC's
   Actual Workforce (Fiscal Years
   1993-97)

   (See figure in printed
   edition.)

Note:  Totals are in actual end strength. 

Source:  DCMC. 

The period also saw decreases in the number of contract
administration offices (34 percent) and the number of prime contracts
(6 percent).  DCMC projects a continual work year decrease through
fiscal year 2002. 


      KEY DCMC RISK MANAGEMENT AND
      WORKFORCE EFFICIENCY
      ACTIVITIES
---------------------------------------------------------- Letter :4.3

In response to mandates requiring DCMC to reduce its workforce and
promote acquisition reform, DCMC officials stated that they have
focused their initiatives on managing risk and fostering efficient
operations.  The risk-based initiatives are designed to coincide with
DCMC's focus on more process review and less product inspection. 
DCMC reduced its quality assurance specialist staff by 54 percent
from fiscal year 1990 to fiscal year 1996.  As a result, DCMC
emphasized initiatives that are designed to promote risk management
in order to better identify customer requirements, focus on critical
processes, and rely on data analysis.  Risk management initiatives
include the following: 

  -- Contractor Self-Oversight.  Contractor self-oversight is
     designed to make contractors more responsible for contract
     compliance and to reduce DCMC surveillance.  Test cases have
     been completed for property, production surveillance, and
     quality assurance sites. 

  -- Engineering Change Proposals.  Because 98 percent of all Class
     II Engineering Change Proposals are accepted by the
     government,\4 DCMC is questioning the necessity of the current
     review process and is looking to reduce the level of review in
     this arena.  DCMC is also trying to resolve the contractual
     implications of reduced oversight of this issue. 

  -- Performance-Based Assessment Model.  This model is intended to
     determine the level and frequency of review on the basis of
     contractors' risk potential.  The level of risk is based on the
     extent to which end products meet cost, schedule, and
     performance goals. 

Acquisition reform initiatives intended to promote efficient
operations include the following: 

  -- Single Process Initiative.  This initiative allows contractors
     to have existing contracts modified to replace multiple
     government-unique management and manufacturing systems with
     common, facilitywide systems.  The initiative is designed to
     promote reductions in contractor operating costs by encouraging
     the consolidation of common processes in facilities that produce
     commercial and DOD products.  DOD anticipates that these actions
     will result in cost, schedule, and performance benefits. 

  -- Government Source Inspection.  Government inspectors have been
     required to review stock items at a contractor's facility prior
     to acceptance and delivery.  This inspection represents a
     significant cost.  To eliminate unnecessary inspections, DCMC
     waived mandatory inspections for contractors that perform at
     quality levels higher than those specified in their contracts. 

  -- Early Contract Administration Services.  This initiative
     involves DCMC personnel in nontraditional contract
     administration services early in the acquisition process
     (typically in the pre-award stages).  The purpose is to minimize
     downstream acquisition problems by helping buying offices select
     more capable contractors, construct more effective
     solicitations, and develop more executable contacts.  Examples
     include developing and reviewing solicitation packages and
     contracts, participating on source selection teams, and
     performing software capability evaluations. 


--------------------
\4 Class II Engineering Change Proposals are proposed changes that do
not affect an item's form, fit, function, cost, schedule, or other
critical characteristics. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :5

We provided DOD officials with a draft of this report.  DOD concurred
fully with its contents.  DOD also provided technical comments that
we incorporated into our final report, as appropriate.  DOD's
comments are included in appendix III. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :6

To compare DOD's acquisition workforce reductions from fiscal year
1993 through fiscal year 1997 to overall workforce reductions, we
compared authorized work years to acquisition workforce actual end
strengths.  To determine DOD's authorized work years, which represent
the annual workload requirement presented by the President's annual
budget submission, we interviewed and obtained data from personnel in
the Office of Under Secretary of Defense (Personnel and Readiness). 
To determine DOD's overall and acquisition workforce actual end
strengths, which represent the actual inventory of people on the
payroll at the end of a particular period, such as at the end of a
fiscal year, we analyzed DOD documents and data provided by the
Defense Manpower Data Center, which collects and maintains an archive
of DOD's automated manpower, training, and financial databases.  We
also interviewed and obtained data from personnel in the Office of
Under Secretary of Defense (Acquisition and Technology) and
(Acquisition Reform) and in the military services. 

To identify initiatives the DCAA and the DCMC have taken in their
contract oversight responsibilities to compensate for the reduction
in their staff, we obtained information from and interviewed
officials at the headquarters of those agencies.  We also reviewed
other documents addressing DCAA and DCMC management and oversight
issues. 

We did not independently review the reliability of the Defense
Manpower Data Center's management information systems or databases. 
However, we discussed quality control procedures used to minimize
sources and chances for error with Defense Manpower Data Center
officials.  Further, we independently obtained the data and compared
the results of our analyses with those of other users of the same
database.  Checking and matching this independently derived
information gave us assurance that the data were consistent.  Lastly,
we ascertained the extent to which DOD assessed the reliability of
the Data Center's products. 

We performed our work from February to May 1998 in accordance with
generally accepted government auditing standards. 


---------------------------------------------------------- Letter :6.1

As arranged with your office, we plan no further distribution of this
report until 30 days from its issue date unless you publicly announce
the report's contents earlier.  At that time, we will send copies to
DOD and other interested parties. 

Please contact me on (202) 512-4841 if you or your staff have any
questions concerning this letter.  Major contributors to this report
were Raymond H.  Denmark, Jr.; James L.  Morrison; Arnett Sanders;
and Clifton E.  Spruill. 

Sincerely yours,

Katherine V.  Schinasi
Associate Director,
Defense Acquisitions Issues


DEFENSE ACQUISITION ORGANIZATIONS
=========================================================== Appendix I

The Department of Defense (DOD) Instruction 5000.58 states that the
mission of an acquisition organization, with its subordinate
elements, includes planning, managing, and/or executing acquisition
programs that are governed by DOD Directive 5000.1 (reference [n]),
DOD Instruction 5000.2 (reference [o]), and related issuances. 
Specifically, these organizations (and any successor organization of
these commands) are as follows: 

  -- Office of the Under Secretary of Defense (Acquisition and
     Technology)

  -- Army Information Systems Command\5

  -- Army Materiel Command

  -- Army Strategic Defense Command (now the Army Space and Strategic
     Defense Command)

  -- Army Acquisition Executive

  -- Office of the Assistant Secretary of the Navy (Research,
     Development, and Acquisition)

  -- Naval Sea Systems Command

  -- Naval Air Systems Command

  -- Naval Supply Systems Command

  -- Naval Facilities Engineering Command

  -- Office of the Chief of Naval Research

  -- Space and Naval Warfare Systems Command

  -- Navy Program Executive Officers/Direct Reporting Program Manager
     Organization

  -- Marine Corps Systems Command

  -- Office of the Assistant Secretary of the Air Force (Acquisition)

  -- Air Force Systems/Air Force Logistics Commands (now the Air
     Force Materiel Command)

  -- Air Force Program Executive Organization

  -- Strategic Defense Initiative Organization (now the Ballistic
     Missile Defense Organization)

  -- Defense Logistics Agency

  -- Special Operations Command (now the Special Operations Command
     Acquisition Center)


--------------------
\5 Disestablished as of October 1, 1996, and realigned as a major
subordinate command under the Army Forces Command, a nonacquisition
organization. 


INFORMATION ON COMPUTER
SPECIALISTS AND CONTRACTING FOR
COMPUTER-RELATED SUPPORT SERVICES
========================================================== Appendix II

In our October 1997 product on DOD's acquisition organizations, we
reported that the largest concentration of reductions in DOD's
civilian acquisition workforce were concentrated in seven
occupational fields:  electronics engineering, secretary,
miscellaneous-clerk, computer specialist, contracting, management
analyst, and miscellaneous- administration.\6 In our June 1998
product on the status of workforce reductions, we reported that the
overall dollar value of DOD's support services contract awards in
areas related to some of those same occupational fields increased
from fiscal years 1993 to 1997.\7

Using data provided by the Defense Manpower Data Center and the
Individual Contracting Action Report-DD Form 350 database for fiscal
years 1993 through 1997,\8 we more closely examined the reductions in
the number of DOD's computer specialists and contracts for computer
related support services.  Although we did not correlate occupational
fields to specific support services contracts, we found that while
the number of civilian computer specialists in acquisition
organizations decreased by about 28 percent from the end of fiscal
year 1993 to the end of fiscal year 1997, the dollar value of
contract awards for computer-related services increased steadily from
1993 through 1996 before declining slightly in 1997. 



(See figure in printed edition.)Appendix III

--------------------
\6 See Defense Acquisition Organizations:  Reductions in Civilian and
Military Workforce (GAO/NSIAD-98-36R, Oct.  23, 1997). 

\7 We have also reported that, where audited, projected savings from
work contracted out generally have not been achieved and, in some
cases, the work was more expensive.  See Defense Outsourcing: 
Challenges Facing DOD as It Attempts to Save Billions in
Infrastructure Costs (GAO/T-NSIAD-97-110, Mar.  12, 1997) and Defense
Depot Maintenance:  Commission on Roles and Mission's Privatization
Assumptions Are Questionable (GAO/NSIAD-96-161, July 15, 1996) for
more details. 

\8 DOD's procurement of commodities and services is reported on the
Individual Contracting Action Report-DD Form 350.  The form includes
codes that describe or characterize various categories of
procurements. 


COMMENTS FROM THE DEPARTMENT OF
DEFENSE
========================================================== Appendix II


*** End of document. ***