The Intelligence Community and Its Use of Contractors: Congressional Oversight Issues

Summary

Congressional Research Service

7-5700

www.crs.gov

R44157

Summary

Contractors have been and are an integral part of the intelligence community’s (IC’s) total workforce (which also includes federal employees and military personnel). Yet questions have been raised regarding how they are used, and the size and cost of the contractor component. Of particular interest are core contract personnel, who provide direct technical, managerial, and administrative support to agency staff. Examples of these types of support are collection and operations, analysis and production, and enterprise information and technology. The use of core contract personnel enables the IC to meet its needs, which may involve obtaining unique expertise or surge support for a particular mission, or augmenting insufficient in-house resources.

The IC has undertaken the following initiatives designed, or used, to track contractors or contractor employees:

The Office of the Director of National Intelligence (ODNI), through Intelligence Community Directive (ICD) 612 (dated October 30, 2009), requires the IC elements to provide inventories of their core contract personnel to the Assistant Director of National Intelligence for Human Capital (also known as the Chief Human Capital Officer (CHCO, or ADNI/CHCO)).

Section 305(a) of P.L. 111-259, Intelligence Authorization Act (IAA) for FY2010, directs each IC component to provide estimates of the number and costs of core contract personnel for the upcoming fiscal year to ODNI.

Section 339 of P.L. 111-259also contained a one-time requirement for the Director of National Intelligence (DNI) to report to the intelligence committees and the armed services committees on the IC’s use of personal services contracts.

While the initiatives themselves are unclassified, the information gathered, or produced, as a result of each initiative—e.g., an inventory of core contract personnel—may be classified. This list of initiatives may not be comprehensive as the IC may engage in other, classified initiatives to assess its use of core contract personnel.

Contractors perform a variety of essential functions for the federal government, including the IC, yet using contractors is not without risk. Questions raised by Congress and others involve the possibility that IC core contract personnel perform inherently governmental activities (which, generally, only federal employees are allowed to perform) or functions, and that the IC’s acquisition workforce does not have sufficient capacity to monitor contractor employees who perform critical functions or functions closely associated with inherently governmental functions. IC components unable to properly oversee contractor employees run the risk of ceding control over their mission and operations to contractors.

Information about how the IC uses contractors may be useful for purposes of oversight, legislating, and policymaking by the House Permanent Select Committee on Intelligence (HPSCI), the Senate Select Committee on Intelligence (SSCI), and other committees that may have an interest in this topic.

Contents

Introduction 1

Background 3

Contractors and Contractor Personnel in the IC 7

Inventory of Core Contract Personnel 7

Personnel Level Assessment 11

Report on Personal Services Contracts 12

Inventory of Commercial Activities and Inherently Governmental Activities 13

Oversight Issues 15

Are Contractor Employees Performing Inherently Governmental Work? 15

Is the IC Equipped to Monitor Contractor Employees? 18

Conclusion 20

Appendixes

Appendix A. Definitions 21

Appendix B. Cost of Using Contractors 24

Contacts

Author Contact Information 24

Introduction

A then-unknown employee of Booz Allen Hamilton, Edward Snowden, burst onto the national agenda in June 2013. The publication of news articles that included or referenced classified information he had obtained while working as a contractor employee for the National Security Agency (NSA) garnered attention both outside and within the United States—including Congress, the Obama Administration, and the intelligence community (IC).

Whereas interest in the IC’s use of contractors spiked with the Snowden revelations, and spawned policies and initiatives designed to prevent, mitigate, or recover from similar incidents, the intelligence community’s reliance on the private sector is not a new phenomenon. Following the end of the Cold War, workforce drawdowns coupled with retirements and limits on hiring federal employees degraded the intelligence community’s capabilities, and the IC “was encouraged to outsource’ as much as possible.” In the aftermath of the September 11, 2001, terrorist attacks, the IC turned to contractors “to meet rapidly evolving mission demands.” A 2006 or 2007 slide presentation attributed to the Senior Procurement Executive in the Office of the Director of National Intelligence (ODNI) suggested that 70% of the IC budget may be spent on contracts. In 2008, the then-head of human capital in ODNI offered the following assessment of the IC’s use of contractors:

The nature of contractors is such that you do have a great deal more flexibility. You can expand and contract more readily using contract personnel. So in any given day, week, month, or year, that number may go up or down. Our objective is to stabilize our military and civilian workforce and then use contractors as appropriate to deal with temporary work surge, unique expertise, et cetera.

Many experts believe the federal government’s reliance on contractors is necessary to accomplish its mission, and this is no less true for the IC. Using contractors is not without risk, however. Depending on the circumstances, an agency could, unknowingly or unintentionally, cede the performance of, or control over, certain agency functions to contractors. As the Chairman of the Senate Homeland Security and Governmental Affairs (HSGAC) noted: “First and foremost, an agency that turns over too much responsibility to contractors runs the risk of hollowing itself out and creating a weaker organization. The agency could also lose control over activities and decisions that should lie with the government, not with contractors.” Mitigating these risks involves agencies’ complying with and implementing applicable statutory provisions, regulations, definitions, and policies.

This report presents, in the “Background” section, a discussion of inherently governmental functions, functions closely associated with inherently governmental functions (closely associated functions), and critical functions. (These three terms are defined in the “Background” section and Appendix A.) This section also addresses challenges involved in exercising oversight over the IC and summarizes the IC’s efforts to determine the optimum mix of its workforce, which consists of federal civilian employees, military personnel, and contractors. The section titled “Contractors and Contractor Personnel in the IC” describes several initiatives designed, or used, to track contractors or contractor employees. While the initiatives themselves are unclassified, the information gathered as a result of each initiative may be classified. This section also includes information gleaned from the IC’s initial effort (which occurred around 2005-2006) to inventory its contractor workforce. In the section on congressional oversight issues, the report discusses the risks and possible implications of using contractors to perform certain categories of work for the federal government and, in particular, the IC. In particular, this section addresses the questions of whether IC contractor personnel are performing inherently governmental functions and whether the IC’s acquisition workforce is equipped to monitor contractors performing critical functions or closely associated functions. The conclusion briefly comments on the challenge of exercising oversight over the IC.

Security issues and concerns regarding the IC’s use of contractors and the IC’s procurement policies, procedures, and practices are beyond the scope of this report and thus are not included in this report.

Background

The report examines, from an acquisition perspective, several reasons for interest in the IC’s use of contractors, notably, the types of functions contractors perform, whether the IC’s acquisition workforce has the capacity to oversee contractors. The crux of the matter is how an agency function is designated—inherently governmental, commercial, critical, or closely associated with inherently governmental functions (closely associated function). The designation determines who should, or may, perform a particular agency function. With several exceptions (one of which is addressed below), only federal employees may perform inherently governmental functions, while either federal employees or contractor employees may perform commercial functions. Closely associated functions and critical functions are particular types of commercial functions. Either agency employees or contractor personnel may perform closely associated functions or critical functions. The following description of closely associated function signals why contractor performance of this type of activity warrants special attention and oversight by an agency.

[A closely associated function involves] certain services and actions that generally are not considered to be inherently governmental functions [but] may approach being in that category because of the nature of the function and the risk that performance may impinge on Federal officials’ performance of an inherently governmental function.

A critical function is “a function that is necessary to the agency being able to effectively perform and maintain control of its mission and operations. Typically, critical functions are recurring and long-term in duration.” An agency may be at risk of losing control over its mission and operations if it fails to effectively monitor contractor employees who are performing critical functions for the agency.

An issue interwoven throughout this report is the challenge of exercising oversight when the focus—the IC—is a mix of classified and unclassified activities and materials. While the data collection initiatives described below are themselves unclassified, the data gathered or produced may be classified. Additionally, the IC may be engaged in additional, classified initiatives for obtaining information about its contractors or their employees.

Examples of congressional interest in the IC’s contractor workforce include legislation; language found in several of the Senate Select Committee on Intelligence’s (SSCI’s) biannual reports; a 2011 hearing on IC contractors; and a Senate Homeland Security and Governmental Affairs hearing in 2014, which featured a Government Accountability Office (GAO) report requested by the committee. For example, SSCI has expressed, over the years, various concerns regarding the IC’s use of contractors, such as the need for “[m]inimal controls over the use of contractor support,” room for improvement regarding incentivizing contractor performance and the monitoring of contractor performance, and the costs of using contractors compared to the costs of using government personnel. Senator Daniel K. Akaka expressed his concerns regarding “contractors ... improperly performing inherently governmental functions,” “the high cost of IC contractors,” and “significant shortfalls” in the IC’s acquisition workforce at a 2011 hearing. SSCI and the House Permanent Select Committee on Intelligence (HPSCI) may also be involved in classified efforts to monitor, or provide direction regarding, the IC’s use of contractors. Generally, these two committees conduct their business in closed hearings and meetings.

Congressional interest in intelligence matters, including the IC’s use of contractors, is not limited to the intelligence committees. Members who do not sit on either intelligence committee (referred to as “non-committee members”) may have an interest in intelligence topics and issues. HSGAC’s request for a GAO report and its related 2014 hearing are examples of other non-committee members’ interest in the IC’s contractors and related issues.

While the IC has continued to rely on the private sector for the provision of goods and services, it has shifted its approach, striving to achieve an appropriate balance among the different components (federal civilian employees, contractor employees, and military personnel) of its workforce, which is consistent with the Obama Administration’s focus on multi-sector workforce management. This shift has been acknowledged, over the years, in various documents. The IC’s five-year Strategic Human Capital Plan, which was an annex to the 2006 U.S. National Intelligence Strategy (NIS), noted the NIS needs a human capital strategy that, among other things, will “determin[e] the optimum mix of military, civilian, contractor, and other human resources necessary to meet” mission critical human resource requirements. Each of the National Intelligence Program Congressional Budget Justification books for FY2011, FY2012, and FY2013 addressed the need to engage in planning for a multi-sector workforce. The FY2013 budget justification stated, “The CMA [Community Management Account] Program expects the Human Capital and Learning project to accomplish the following in FY2013: ... Fully plan for the multi-sector workforce to consider the best mix of U.S. Government, military, and contract personnel to address emerging needs and meet enduring requirements.” Testifying before a congressional committee in June 2014, the Principal Deputy Director of National Intelligence (PDDNI) acknowledged that contractors are “an integral part” of the IC while noting that the community’s needs have changed which, in turn, has prompted the IC “to rebalance [its] workforce with fewer core contractors.” The outcome of this effort is not known.

The PDDNI’s comments echoed language found in the President’s FY2014 budget request that referenced a continuing effort to reduce the IC contractor workforce while maintaining the “Government personnel levels.” The following fiscal year’s (FY2015) summary of the National Intelligence Program (NIP) in the President’s budget continued this theme, but also noted that the budget would reduce government personnel levels. Omitting references to any particular component of the IC workforce, the 2014 NIS mentions, in the context of workforce planning, the importance of ensuring “the IC has the right people with the right skills in the right place at the right time to accomplish the mission in high-performing teams and organizations.”

Contractors and Contractor Personnel in the IC

This section describes unclassified efforts to collect data about the IC’s contractors or contractor employees. The information collected as a result of, or in relation to, the policies or statutory provisions described below does not appear to be publicly available and may be classified. This report is not necessarily comprehensive as the IC may engage in classified initiatives to track its contractors or contractor employees.

Inventory of Core Contract Personnel

The IC divides its contract personnel into two categories: non-core and core. The non-core category includes individuals who perform services not related to the mission or operations of the IC (e.g., food services), or who are not required to have security clearances. Of particular interest to the IC, and others, is the community’s use of core contract personnel. Core contract personnel generally perform mission-related work, which, as discussed below could, under certain circumstances, have implications for the ability of IC components to maintain control over inherently governmental functions and their missions and operations. ODNI describes this category as follows:

[Core contract personnel] are those independent contractors or individuals employed by industrial contractors who augment USG [U.S. government] civilian and military personnel by providing direct technical, managerial, or administrative support to IC elements. Core contract personnel typically work alongside and are integrated with USG civilian and military personnel and perform staff-like work.

The intelligence community uses core contract personnel for these reasons:

“Immediate Surge: To provide surge support for a particular IC mission area. In this regard, the use of a contractor enables the IC element to rapidly expand to meet a mission or business exigency, and then curtail that contract support when the exigency passes. A surge requirement may be of extended duration.”

“Discrete Non-Recurring Task: To accomplish a discrete, nonrecurring, or temporary project, work assignment, or task of definite or deliverable, such that the contract ends when the project, assignment, or task is completed.”

“Unique Expertise: To provide unique technical, professional, managerial, or intellectual expertise to the IC element, where such expertise is not otherwise available from U.S. Government (USG) civilian or military personnel.”

“Specified Service: To provide a specified service, including technical assistance, in support of a core mission or function, where that service is of indefinite quantity.”

“Insufficient Staffing Resources: To perform work that would otherwise have been provided by a USG civilian given sufficient resources.”

“Transfer of Institutional Knowledge: To maintain critical continuity or skills in support of a particular mission or functional area in the face of skills gaps, the loss (anticipated or otherwise) of mission-essential USG civilian or military personnel, or other similar exigency.”

“More Efficient or Effective: To provide support or administrative services, where the provision of such services by contract personnel is determined to be effective or efficient.”

The IC initiated its first inventory of core contract personnel in 2006. The reasons for undertaking this effort included “congressional concern, ODNI concern, a desire to get a handle on the role of contractors, and the extent of contracting in the intelligence community.” A few years after the IC compiled its initial inventory, the Associate Director of National Intelligence for Human Capital (also known as the Chief Human Capital Officer (CHCO) or ADNI/CHCO) participated in a conference call with several journalists in which he described the results of the inventory, which involved the total workforce of the NIP. In FY2007, approximately 100,000 civilian employees and military personnel were part of the IC workforce. During the same time period, contractor personnel made up 27% of the IC’s total workforce. The breakdown of functions performed by contractor employees in FY2007 was as follows:

27% of core contract personnel “supported collection and operations”;

22% “supported enterprise information and technology”;

19% “supported analysis and production”;

19% supported “enterprise management and support”;

4% supported “mission management”; and

9% supported “processing, exploitation, and research and development activities.”

The IC’s inventory also included the reasons why IC elements used contractors and the location of contractor personnel.

Over one-half (56%) of core contract personnel provided unique expertise;

11% performed work that would have been performed by federal civilian employees if sufficient funding had been available;

approximately 10% were used because it was more cost effective than federal employee performance;

approximately 8% worked for the IC because of funding uncertainties;

5% supported surge requirements; and

3% worked on non-recurring projects. (The remaining 7% was not addressed during the conference call.)

Most (73%) contractor personnel were located on IC premises; 27% were located off-premises (facilities “owned and operated by their contract employer[s]”). The greater Washington-Baltimore metropolitan area was home to 81% of core contract personnel.

In October 2009, ODNI issued Intelligence Community Directive (ICD) 612, which addresses the IC’s use of core contractor personnel. In addition to requiring IC contractors to provide certain compensation information and encouraging IC elements to reemploy federal civilian annuitants under the National Intelligence Reserve Corps, this directive established an annual requirement for IC elements to provide information about core contract personnel to the ADNI/CHCO. Additionally, the IC elements are to “determine, review, and evaluate the actual and projected number and uses of core contract personnel in support of their intelligence mission[s].” The results of an IC element’s review are to be “reflected in [its] annual budget submission.” ODNI is to provide “the results of the inventory to OMB [Office of Management and Budget] and [the IC’s] oversight committees and include [an] analysis of the inventory submissions.”The “scope, form, and format” of the information required to be reported by ICD 612 was to have been promulgated as an Intelligence Community Standard. Neither the IC Standard for core contract personnel nor the IC elements’ inventories of core contract personnel appear to be available on the ODNI website. Information contained in a GAO report that examined several of the IC’s core contract inventories revealed the inventory contains 10 data fields, including the following, as described by GAO:

“the number of full-time equivalents (FTEs) on core contracts”

“the functions performed by core contract personnel”

“the reasons for using [core contract] personnel”

“fiscal year obligations”

“budget category”

“primary contractor occupation and competence expertise”

“name of the contractor”

“number of direct labor hours”

GAO also reported that the “number and types of data fields available vary by fiscal year.”

GAO examined the core contractor inventories of the eight civilian components of the IC and reported its findings and recommendations in an unclassified study that was released in January 2014. (A classified version was issued in September 2013.) The reports addressed “(1) the extent to which the eight civilian IC elements use core contract personnel, (2) the functions performed by these personnel and the reasons for their use, and (3) whether the elements developed policies and strategically planned for their use.” GAO determined that the “comparability, accuracy, and consistency” of the inventories were limited, because of the following problems: variations in the definition of core contract personnel over the years, a lack of standardization among IC elements in calculating the number of contractor FTEs and missing documentation for calculating contractor FTEs, and contract cost data that “were inaccurate or inconsistently determined.” Faced with these challenges, GAO was unable to determine accurately the extent to which the IC’s civilian components have used core contract personnel. Specifically, GAO could not reliably determine “the number of core contract personnel” performing functions for the civilian IC or the reasons they were used.

Questions about the data’s reliability and accuracy may undermine its potential utility as a tool for policymaking and oversight by the IC leadership and Congress.

Personnel Level Assessment

Beginning in 2011, the DNI is required to complete, in consultation with the head of each IC component, an annual personnel level assessment that includes information about each component’s core contract employees and agency personnel. The HPSCI report accompanying H.R. 2701 (111th Congress, enacted as P.L. 111-259) stated that this requirement “should assist the DNI and the congressional intelligence committees in determining the appropriate balance of contractors and permanent government employees.” The statutory requirement, which may be found in Section 305(a) of P.L. 111-259, Intelligence Authorization Act for FY2010, directs each component to report its “best estimate of the number and costs of core contract personnel to be funded by [it] for the upcoming fiscal year,” and provide numerical and percentage comparisons with the same information for the current fiscal year and the preceding five fiscal years. IC components are also required to provide similar information regarding their federal employees and FTE positions. Each element’s assessment is to include a “justification for the requested personnel [federal employees] and core contract personnel levels” and the “best estimate of the number of intelligence collectors and analysts employed or contracted” by each IC element. With the passage of the Intelligence Authorization Act for FY2015 (P.L. 113-293), the IC’s personnel level assessments are to include descriptions of the functions performed by contractors serving as intelligence collectors and analysts.The personnel level assessments are to be submitted to the intelligence committees “each year at the time that the President submits to Congress the budget.”

Report on Personal Services Contracts

A one-time requirement for the DNI to report on the IC’s use of personal services contracts was enacted in 2010. Section 339 of P.L. 111-259, Intelligence Authorization Act for FY2010, required the DNI to report the following information to the intelligence committees and armed services committees: “the use of personal services contracts across the intelligence community, the impact of the use of such contracts on the intelligence community workforce, plans for conversion of contractor employment into United States Government employment, and the accountability mechanisms that govern the performance of such person services contracts.”

Generally, an agency’s use of personal services contracts garners attention because an agency is not permitted to use this type of contract unless it has statutory authority to do so. Relatedly, the use of personal services contracts (PSCs) could have implications for the federal government’s merit staffing procedures which are used to hire employees. The Federal Acquisition Regulation (FAR) includes this caution regarding personal services contracts:

The Government is normally required to obtain its employees by direct hire under competitive appointment or other procedures required by the civil service laws. Obtaining personal services by contract, rather than by direct hire, circumvents those laws unless Congress has specifically authorized acquisition of the services by contract.”

The IC’s use of personal services contracts is also addressed below, in the section titled “Are Contractor Employees Performing Inherently Governmental Work?”

Inventory of Commercial Activities and Inherently Governmental Activities

Information available from the ADNI/CHCO’s website indicates that the office compiles inventories of the IC’s commercial activities and inherently governmental activities.

The Workforce Planning team collects and consolidates data for all 17 IC agencies to perform Federal Activities Inventory Reform (FAIR) Act reporting on which IC activities are inherently governmental and which must be performed by government employees, along with a service contractor inventory to provide an opportunity for integrat[ing] the two inventories to support balanced workforce analyses.

Although the inventories do not include information about an agency’s contractors or contractor personnel, agency staff may find the process of compiling the inventories, or the inventories themselves, to be useful in determining the appropriate mix of personnel (federal employees and contractors) for their agency.

With the enactment of the Federal Activities Inventory Reform (FAIR) Act of 1998 (P.L. 105-270), federal agencies subject to the statute are required to compile, and submit to OMB, an annual inventory of their commercial activities. The requirement for agencies subject to the FAIR Act to also submit inventories of their inherently governmental activities began during the Administration of President George W. Bush. An agency’s inventory is to include, for each function listed, the following information:

Department and bureau names

Function code

Product or service code

Total number of FTEs

Reason code

City, state, and country where the function is located

The first year the function was included in the inventory

Unit name

Under the FAIR Act, OMB’s responsibilities include publishing a notice in the Federal Register announcing when agencies’ FAIR Act inventories are available. The first year agencies were required to produce inventories was 1999, and OMB’s December 30, 1999, announcement included two entries identifiable as IC elements: “Intelligence Community Management Staff and Central Intelligence Agency,” and “Intelligence Community: Other Agencies.” Both of these entries included this caveat: “Appropriate security clearance and need to know must be established for access.” The Central Intelligence Agency (CIA) was the only readily identifiable IC component included in OMB’s announcements in 2000 and 2001. The entry for each year stated “[n]o website available.” To date, the only additional Federal Register announcement that mentioned the IC involved the 2003 inventories; the entry for “Intelligence agencies” indicated the website was not available.

The excerpt from the ADNI/CHCO’s website (see above) also mentions a service contractor inventory, which may be a reference to a service contracts inventory. Two separate statutory provisions require the Department of Defense (DOD) and certain executive branch civilian agencies to prepare and submit to OMB annual service contracts inventories. The inventories are to include the number of contractor employees (or an equivalent measure) for each contract listed. Information provided in a 2014 GAO report suggests, however, that the IC’s efforts to inventory its contractors are not related to either of these statutory provisions. GAO wrote,

One tool identified by OFPP [Office of Federal Procurement Policy] that can help agencies plan for the use of contract personnel and mitigate associated risks is a service contract inventory, which for the IC is the annual core contract personnel inventory.

As discussed above, ICD 612 requires the IC to compile an annual core contract personnel inventory.

Oversight Issues

Over the years, questions have been raised regarding the possibility that contractor employees performing work for the IC are performing inherently governmental functions. Several years after the issuance of OFPP Policy Letter 11-01, some observers questioned whether IC components are properly managing their critical and closely associated functions, including oversight of contractor employees performing these functions.

Are Contractor Employees Performing Inherently Governmental Work?

Although the ODNI’s ICD 612 prohibits using contractor personnel to perform inherently governmental activities, there have been indications that contractor personnel performed, or might have performed, inherently governmental activities for the IC. In its 2006 human capital strategy, ODNI acknowledged that some of the work performed by IC contractors might be “borderline inherently governmental.’” The same document also noted OMB’s interest in the possibility that contractor employees were doing inherently governmental work. OMB had requested that ODNI “conduct a study to determine if contractors may be engaged in IC work that is inherently governmental’ and hence improper.” ODNI stated it had initiated the study and expected to complete it by the end of FY2006. Neither the status of the study nor its results, if any, are known. Several years later, the ODNI issued ICD 612, which states: “Core contract personnel will not engage in inherently government activities, as defined by Office of Management and Budget Circular A-76, as revised.” Yet, an appendix to a 2011 hearing on the IC and contractors stated “it is unclear whether or how the ODNI or other IC agencies oversee compliance with that directive [ICD 612].”

Although, generally, only federal employees may perform inherently governmental activities, a contractor employee who works for an agency pursuant to a personal services contract is permitted, under the Federal Acquisition Regulation, to perform inherently governmental activities. At times, ODNI’s definition of core contract personnel has included language that could be interpreted as suggesting such personnel might perform inherently governmental work pursuant to personal se