inherently governmental | The Contracting Education Academy

In an about-face, the Army has suspended all of its ongoing insourcing activities, potentially savings thousands of private sector positions.

In a Feb. 1 memorandum, Army Secretary John McHugh announced he was halting the service’s insourcing initiative immediately in favor of a scaled-back approach in which his office would have to directly approve projects.

“In an era of significantly constrained resources, the Army must approach the insourcing of functions currently performed by contract in a well-reasoned, analytically based and systemic manner, consistent with law and prevailing presidential and Department of Defense guidance,” McHugh wrote in the memo, released on Thursday by the Professional Services Council, an industry group that has opposed plans to bring contractor jobs back in-house.

The memo suspends all ongoing insourcing transitions, but does not reverse efforts that already have been completed.

Army spokeswoman Anne Edgecomb said the memo is not intended to stop insourcing altogether but to ensure that the process is conducted responsibly and deliberately. “We are trying to make sure we do everything we can to be fiscally responsible,” Edgecomb said. “We see the writing on the wall.”

Edgecomb did not have figures immediately available on the number of contractor positions the policy change would effect.

The Defense Department’s insourcing program leader said on Thursday that the Pentagon did not direct Army to change its policy.

“The department is committed to meeting its statutory obligations under Title 10 to annually review its contracted services, identifying those that are inappropriately being performed by the private sector and should be insourced to government performance,” said Thomas Hessel, a senior manpower analyst in the Office of the Undersecretary of Defense for Personnel and Readiness, in a statement to Government Executive. “This includes services that are inherently governmental or closely associated with inherently governmental in nature; provide unauthorized personal services; or may otherwise be exempted from private sector performance … While some contracted services may be identified for insourcing, some services determined to be no longer required or of low priority may be eliminated or reduced in scope while others will continue to be provided by the private sector.”

All future insourcing proposals, McHugh wrote, must include “at minimum, a manpower requirements determination, an analysis of all potential alternatives to the establishment of permanent civilian authorizations to perform the contracted work, certification of fund availability and a comprehensive legal review.”

Thomas Lamont, assistant secretary of the Army for manpower and reserve affairs, along with Mary Sally Matiella, assistant secretary of the Army for financial management and comptroller, will be responsible for developing criteria to evaluate the efficiencies generated from the policy change, McHugh said.

Contractor groups, which have long criticized the Defense Department’s insourcing plans as driven by quotas and lacking any verifiable cost savings, applauded the development.

“Secretary McHugh is taking the right approach to insourcing,” PSC President Stan Soloway said. “We have said all along that all sourcing decisions for clearly commercial work — whether insourcing or outsourcing — must be done strategically with the best interests of the government mission and American taxpayer in mind.”

John Palatiello, president of the Business Coalition for Fair Competition, a group formed to challenge the Obama administration’s insourcing plans, said the memo is proof the initiative has been poorly executed.

“BCFC renews its call for a governmentwide moratorium on insourcing until common-sense standards and metrics for assuring that any insourcing is in the taxpayers’ interests, does not increase unemployment, and is focused on statutorily defined inherently governmental activities, not commercial activities,” Palatiello said.

The memo comes only a few weeks after the Government Accountability Office reported the Army had identified more than 4,200 full-time jobs in which contractors are performing either inherently governmental or unauthorized personal services. In both the inherently governmental and the unauthorized personal services contracts, the Army typically would be required to bring those functions back in-house.

Defense Secretary Robert Gates announced in August 2010 that the Pentagon was implementing a fiscal 2011 billet freeze and halting its insourcing plans because of a lack of cost savings. But, the plan affected only civilian agencies and offices. The military services were exempt from the freeze, allowing them to continue with their insourcing plans.

Soloway called on the other military services to follow the Army’s approach. “Through such a process the Army, DoD and the taxpayer will gain vital insight into the total life-cycle costs associated with these decisions, the degree to which they address the Army’s workforce needs, and more,” he said. “We hope, as they say, the Army leads the way.”

– by Robert Brodsky – GovExec.com – February 3, 2011

When the Obama administration released figures showing that Uncle Sam spent less on outside contractors for the first time in 13 years, the data pointed to a little-publicized difference in the way Democrats and Republicans approach deficit reduction.

Spending on contractors may not be as sexy as other items, but it’s a difference that has serious implications for federal employees.

In fiscal 2010, $535 billion was spent on those services, $15 billion less than the year before, officials at the Office of Management and Budget said Thursday.

“Under the prior administration, spending on government contracts more than doubled,” said Jeffrey Zients, OMB deputy director for management and the administration’s chief performance officer.

They were blowing their own horns while taking a swipe at Republican policies, but the money they were talking about is significant.

If the Obama administration’s spending on contractors had continued at the Bush administration’s rate, the government would have spent $80 billion more in 2010, according to the OMB.

“We have reversed the trend of uncontrollable growth, and we’re saving money and making sure every taxpayer dollar is being well spent,” Zients said.

The key, added Daniel Gordon, OMB’s administrator of federal procurement policy, was “buying less and buying smarter.”

Although some cuts in contract spending had to do with such things as weapons systems and fuel, Gordon said OMB is working with agencies to reduce spending on professional and technical services, which has grown disproportionately in recent years.

“We see significant potential for savings,” he added. “The president’s budget for fiscal 2012 will call for a reduction in categories that include these services, but we need to start the savings now, in fiscal 2011, and we will be working with the agencies to do that.”

The savings OMB announced certainly won’t solve Washington’s financial problems, but every dollar counts. Yet when some deficit hawks look for places to cut, they manage to ignore contractor spending while making sure they target federal employees.

When the Republican Study Committee, for example, issued its long list of proposed cutbacks, “federal workforce reforms” were near the top. They included freezing civilian pay for five years, instead of the two years already imposed, and cutting the workforce by 15 percent through attrition.

The committee did mention contractors near the end of its list, but not as a way of cutting spending. Instead, the Republicans recommended a change in policy that would allow more of Sam’s work to flow to the private sector. While almost every other item on its long list indicated an amount that could be saved by cuts, no dollar figure was attached to the call for more “competitive sourcing of government services.”

The difference in approach between the White House and Republicans is an important one for Frankie and Flo Fed.

Federal workers have long complained that contractors too often do work that should be reserved for employees. Some of this is about turf. Federal labor unions, for example, want to keep as much federal work as possible for federal workers, because that’s who their members are.

But much of it is about the governmental imperative that “inherently governmental” work should be done by people directly on Sam’s payroll. Collecting taxes certainly is an inherently government task, but outside contractors had been doing some of that work until the Obama administration put a stop to it last year. An Internal Revenue Service statement at the time said that “IRS collection is more cost-effective than the contractors.”

Last year, the chairmen of the National Commission on Fiscal Responsibility and Reform proposed eliminating 250,000 non-defense contractors who provide services and augment the workforce. The chairmen also suggested slashing spending for contractors who assist Pentagon staff by 20 percent each year from fiscal 2011 through 2013.

The Republican committee, however, says contracting may be the frugal option.

“Our focus in allowing competition from the private sector is to reduce overall spending. If taxpayers get a better deal by having nongovernmental activities like lawn mowing performed by a contractor, it only makes sense to do that,” said Brian Straessle, a spokesman for the committee. “If having federal employees mow the lawn is cheaper, let’s do that. The point is, there should be an option.”

Although the IRS found it could conserve funds by using federal employees instead of contractors, OMB officials did not claim that the savings they announced were the result of having employees perform jobs formerly given to outsiders.

In fact, Gordon said, “we never viewed insourcing as a way of getting dramatic savings. . . . We view it as a good-overnment management initiative.”

One good-government initiative was strengthening the notoriously weak acquisition workforce – the federal employees who work with contractors to make sure they deliver, as Gordon said, “on time and on budget.”

Financing good government must include a closer look at contractors, according to one labor leader. “If Congress is serious about saving money,” said Colleen M. Kelley, president of the National Treasury Employees Union, “lawmakers should look more closely at the contracting process.”

– by Joe Davidson – Washington Post – Friday, February 4, 2011; B03

Army suspends all ongoing insourcing plans

Deficit-cutters must also weigh cost of contractors

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