Defense purchases of services rise sharply

GAO auditors say competition and contract oversight are important to secure best deals for the Pentagon.

Rapid growth over the past five years in service contract costs could reflect overpayments by the Defense Department, according to the Government Accountability Office. But the advantages of freeing up uniformed personnel for combat duty and the difficulty of calculating what it would cost to do the work in-house argue against more closely analyzing the issue, auditors concluded.

In a new analysis (GAO-07-631) of Defense operations and maintenance service contracting completed at the request of House appropriators, GAO found that purchasing of services has grown steeply over the last several years.

The operations and maintenance funds that equip soldiers and maintain bases, among other uses, increased 57 percent between fiscal 2000 and fiscal 2005, largely due to operations in Iraq and Afghanistan and disaster response, GAO found. Service contracts over the same period rose an even steeper 73 percent.

In contrast, operations and maintenance spending increased about 1 percent annually over the preceding five-year period, GAO found.

Defense officials attributed the recent increase in part to aging military infrastructure, higher fuel and utility costs and information technology spending. They also cited an increased use of budget work-arounds through which the branches buy services such as training rather than products like new simulators, thus avoiding competition for scarce procurement funds.

The military branches recently have expressed concern about the high price tag of services, with the Army and Air Force both issuing guidance on cutting costs. Officials told GAO of concerns about contract development and oversight, as well as the loss of flexibility that can result from contractors doing work formerly performed by uniformed personnel.

But Defense officials also told GAO that buying services frees up military personnel for combat, and can supply skills that are in short supply within the department. Using contractors also can be easier during the hiring and firing stages, officials said, and can be cost-effective when there is strong competition.

GAO reviewers found that on the whole, there was not enough information available to assess whether service contracting is cost-effective. "Sufficient data are not available to determine whether increased services contracting has caused DoD's costs to be higher than they would have been had the contracted activities been performed by uniformed or DoD civilian personnel," they wrote.

Analyzing data on competitive sourcing showed that outsourcing stemming from a public-private competition generally saved money, but reviewers said the process was not necessarily reflective of the overall universe of service contracting.

Reviewers said that while there might be "some merit" in better analyzing the cost-effectiveness of operations and maintenance service contracts, they did not recommend doing so, given how expensive it would be and the immediate pressures of military operations. "As long as DoD uses competitions in its contract solicitations for new and expanded requirements and provides adequate contract oversight, cost efficiencies could be achieved through normal market forces," they wrote.

Last year, a congressionally chartered panel on services acquisition found that in fiscal 2005, 20 percent of government service contracts were issued without competition. The panel also found that a reporting problem with Defense contracts may have overstated the number that used full and open competition.

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