When President Barack Obama tells supporters “we have turned over too much of the public mission of defense and foreign policy to private firms interested primarily in profit…the days of giving defense contractors a blank check are over,” he’s really not saying anything new.
In 2003, when Wesley Clark was seeking the Democratic nomination for the presidency, he told NPR, “I think we should be concerned about the military-industrial complex,” referring to Dwight Eisenhower’s farewell address from 1961.
The debate has raged on insourcing for years, and isn’t specific to the United States. In 1977, the British Parliament passed the Aircraft and Shipbuilding Industries Act, which nationalized much of the defense industry (and created British Aerospace, the predecessor to BAE Systems).
While a nationalization on that scale isn’t feasible (or constitutional) in the United States, there has been considerable debate in government and industry circles about the efficacy of insourcing, particularly in acquisitions.
The Office of Management and Budget’s guidelines for contractor reform forbid “over-reliance on contractors” and say agencies must achieve “the best mix of public and private labor resources,” and in response, Commerce, Defense, Education, Interior, Labor, GSA and NASA are all conducting pilot programs to insource their acquisitions processes. OMB guidance says that contractors “must not perform inherently governmental functions, such as awarding contracts — nor should contractors be used as a substitute for the strong internal capacity required for an agency to provide sufficient management and oversight of its contractors,” and while no one argues that certain functions can only be performed by government, some experts caution against temptations to create new monopolies.
“When you insource something, you basically make it a monopoly,” said government contracting expert and University of Maryland professor Jacques Gansler. “The government does the job — qualified or not — whereas in the past, you had the private sector operating in a competitive environment.”
Gansler links the current push for insourcing to powerful government worker unions. “Congress is stating that you will no longer have competition between public and private sectors — that’s clearly to satisfy the unions,” he said. In fact, in 2009 for the first time in American history, more union workers were employed by federal, state and local governments than by the entire private sector.
Gansler would tell the government to “focus on results, not inputs. In other words, don’t decide beforehand who would be best to do something. Decide based on the results you get. If you get higher performance and lower costs, keep doing that. If that comes from competitive sourcing between public and private, fine. If that comes from competition between two private sector firms, fine.”
Rep. Jim Moran (D-Va.) concurred in an interview last year. “The acquisition process is inherently governmental. It should not have been contracted out, so we are going to bring it back in. There are other functions that can far more efficiently be provided by the private sector and those will continue to be done in that way.”
Moran said: “There needs to be more flexibility in terms of compensation for government personnel particularly in the Pentagon’s principle areas of responsibility,” to avoid a potential personnel shortage in defense acquisitions. He said: “On the whole, there is a relatively negative attitude towards contractors and we are working every day to improve that image and to try to discourage the kinds of activities and rhetoric that underscore people’s negative feelings towards contractors. It is a two-way street. Contractors have to conduct themselves in such a way that it brings honor to the industry and the Congress needs to be fair in its assessment of what it expects of contractors.”
Gansler agrees, “The basic problem has been that for the last literally 20 years, the inherently governmental portion of the acquisition workforce has been grossly undervalued.” He continued, “The undervaluing of the importance of the acquisition workforce is apparent when the budget started skyrocketing, they brought in warfighters, but they didn’t bring in inherently governmental acquisition jobs. The Army had five general officers in 1990 with a contracting background; in 2007, they had none. If you’re a young major, trying to decide what job to go into, if there are no general officers in acquisitions, you’re probably not going to pursue that career path.”
Also, for Gansler, another part of the problem is that, to address the shortage of acquisition personnel, “which is a serious problem, they have said, ‘well, now we’ll just do insourcing of acquisition jobs.’ The definition of ‘inherently governmental’ is being expanded so much that anything can fit into it. In other words, they’re saying inherently governmental work includes work that’s related to inherently governmental or critical work.” He said one of the first consequences of this is “the Air Force is talking about bringing their maintenance work in-house. There’s nothing in the constitution about maintenance being an inherently governmental job. The management of the process is inherently governmental, but there’s a big difference between the managers and the doers. That’s where the breakdown is occurring.”
Dan Gahr, SVP and CFO of WBB, Inc., said he fears the need to insource the acquisition process will make the government the “employer of only resort or making matters worse by filling jobs with more unqualified people.” He sees the current insourcing push as “real, but only above a nuisance level at this point. I expect it will get worse and then the entire idea will collapse upon itself.”
He continued: “To date, we see no rhyme or reason to the application of insourcing. The requirement is very vague and is being interpreted through a different lens at each field activity. While we have seen some direct impact from the Air Force at ACC in the Tidewater area, we saw more of an indirect impact as employees are unnerved by the possibility and are jumping at government jobs. We are still convinced that the government is completely incapable of achieving their goals although there may be some pain until they realize the folly of their ways.”
Also, Gahr noted there is “no evidence whatsoever” that insourcing saves the federal government money. “All of the propsed savings are built on a straw man that must anticipate that the employees will not have any retirement benefits, save for retirement and die on the day they stop working. There is a significant fringe tail from this policy that is being totally ignored.”
“The biggest argument that the government doesn’t want to bring up is the difference between monopoly pricing and competitive pricing,” Jacques Gansler said. “When we’ve had public-private competitions, the public sector often wins, but they win because they make significant cost reductions. On average, when the government wins a competition, the savings are over 30 percent, but that’s because of the competition. When the government is sole-source, that savings disappears.”
Gansler continued: “I can think of four different studies that have been done by the government that show insourcing does not save money. CBO did one on logistics support in 2005 that over a 20 year period, Army units would cost roughly 90 percent more without contractors. The GAO did one on warfighter support cost comparison between State Department vs. contractors for security services. To use State Department people to provide security in Baghdad would cost $858 million per year, vs. contractors $78 million, about 90 percent more expensive.”
“Insourcing has not impacted us on the government side at all,” said Paul Colangelo, vice president, government solutions at Convergys. “We still believe that the government has a unique need to manage through various surge capabilities. An example of that would be healthcare. We wouldn’t expect the government to go and hire 3,000 employees to handle a three- to six-month spike in volume based around open enrollment or some other seasonal driver.”
David Melcher, president of ITT Defense & Information Solutions, said some of his company’s Systems Engineering and Technical Analysis (SETA) work has been insourced, but he doesn’t have a problem with that. “Some of that work is now being insourced, which I welcome because I think inherently governmental work should to be done by governmental employees. I have no problem with withdrawing contract support from government offices that make decisions about programs. We have worked that into our business analysis on where we go in the future. I think it’s a welcome change.”
Don Morrison, VP of contracts at Lockheed Martin, said Lockheed hasn’t made any “major changes to our approach to business with respect to this issue. I am aware that the government desires to keep more jobs ‘in-house,’ but to date, I have not observed a significant impact to our business.”
He noted both industry and government are “equally affected” by the shortage of qualified acquisition personnel in the federal government. “There is currently a shortage of what I would call top-level talented contracts/acquisition personnel across the board. For example, I currently have roughly 400 contracts employees and nearly half of them can retire in the next two to five years—this is a huge issue. My greatest challenge, however, relates to the 10 to 15 years of experience group because this is the pocket of my enterprise that is more likely to rotate among companies within the industry, as well as, the government.”
