March 6, 2001The Defense Department should take immediate action to better track the costs of its service contracts, according to a new report from the General Accounting Office. The report, "Contract Management: No DoD Proposal to Improve Contract Service Costs Reporting," (GAO-01-295) concludes that the Pentagon has failed to improve the way it reports the costs of service contracts. GAO has previously found that inconsistencies in cost reporting across the military services cripple the Pentagon's ability to measure the benefits of outsourcing. In 1999, the Defense Department spent more money on contracts for services than it did on purchasing supplies and equipment. "Without improving [the reporting of contract service costs], the Department of Defense's report on the costs of contract services will still be inaccurate and likely understate what the Department of Defense is paying for certain types of services," the report said. In the report, GAO found Defense has made no progress toward improving its cost tracking system for service contracts, despite a June 1999 commitment to Congress that the Pentagon would update its system. Further, from interviews with officials in the Defense comptroller's office, GAO determined that momentum to improve cost tracking at the Pentagon had "subsided." Accountants across the military services have long held different views of the reporting requirements of various acquisition guidelines, leading to inconsistent reports. The Pentagon has previously suggested revising Office of Management and Budget Circular A-11, which explains how costs on service contracts are reported, to better reflect the actual services being purchased. But the Defense Department did not describe its efforts to revise OMB Circular A-11 to GAO auditors or in a separate October 2000 report to Congress. GAO called on Defense Secretary Donald Rumsfeld to work with OMB to craft a plan for improving the accuracy of cost data on service contracts. In its response to a draft of the GAO report, the Pentagon committed itself to improving its cost tracking data and pointed out that cost tracking is a problem throughout the federal government. Observers held mixed views on the effect GAO's findings should have on the government's use of contractors. The report calls into question whether the government saves any money through contracting out, according to Bobby Harnage, president of the American Federation of Government Employees. "It has been clear to anyone not on a contractor's payroll that DoD's service contracting crusade has nothing to do with efficiency and everything to do with showering countless tax dollars on politically well-connected contractors," said Harnage. But outsourcing does save the government money, said Stan Soloway, president of the Professional Services Council, and the GAO report shows the need to track both the costs of work performed by contractors and by in-house employees. "To take the GAO conclusions as any suggestion that outsourcing is not working would be a misinterpretation," he said. "If there will be a push to develop the kinds of systems that can truly track service contract costs, [the government] ought to be doing the same thing for in-house performance."
March 6, 2001