insourcing | The Contracting Education Academy

December 22, 2010 By AMK

Best and worst performances in government contracting in 2010

As old years end and new ones begin, I can’t resist the temptation to talk about who had a good year and who had a bad year.

Admittedly my criteria are arbitrary so don’t hesitate to disagree. There are plenty of worthy candidates for best and worst year. Here are my picks. Please share yours.

Who had a bad year?

Small Businesses
As insourcing continued as a management strategy by many government agencies, small businesses felt the biggest impact. While companies across the size spectrum saw contracts go away or workers get recruited into government jobs, small businesses have the smallest cushion to absorb the hits.

Compounding the issue is that small businesses often are doing to jobs most likely to get insourced.

Small businesses also faced challenges in the market as agencies continue to bundle smaller contracts into larger ones that are difficult for small business to qualify for as prime contractors.

Who had a worse year?

Unisys Corp.

Their battle to hold onto their Transportation Security Administration infrastructure contract lasted nearly a year before they exhausted all their protests and appeals.

Unisys fought hard to keep the work, which had been worth more than $2 billion since the contract started in 2002. The recompete, worth about $500 million, went to Computer Sciences Corp.

The fight for Unisys to keep the contract went through multiple rounds, with Unisys winning most of those rounds. TSA was forced to reevaluate bids, but still picked CSC. The Government Accountability Office ultimately sided with TSA, and CSC was allowed to begin work on the contract in August.

Who had the worst year?

GTSI Corp.

I don’t think I’ll get many arguments about this choice.

A Small Business Administration suspension nearly sunk GTSI and the company is still reeling.

Accused of using small businesses as front companies to funnel money and work to itself, GTSI had to jettison its chief executive officer and general counsel just to get the suspension lifted. The company’s stock sank and its reputation is severely damaged.

The new CEO Sterling Phillips has vowed to accelerate the GTSI’s strategy of becoming a services company. But he’s the fourth CEO with that goal without even considering the impact of the now-lifted suspension.

Phillips acknowledged the hit the company’s morale has taken and is frank about the challenges ahead. He’s also confident that GTSI will come out of this intact and independent.

Who had a good year?

Agilex Technologies

The company suffered a tragic blow at the start of 2010 when its co-founder Robert LaRose died unexpectedly.

He was mourned by a who’s who of industry leaders who got their start in government IT under his tutelage.

But his legacy of setting high expectations lives on at Agilex, which experience explosive growth – beyond the 2010 goals LaRose set for the company before his death.

Revenue grew 70 percent. The company added 100 employees to its headcount and it launched a fourth line of business to pursue Homeland Security and Justice department customers.

The company is also one of the first Apple authorized systems integrators in the government market.

While LaRose’s loss surely weighs heavily at the company, the foundation he left behind continues to thrive.

Who had a better year?

TASC Inc.

Northrop Grumman sold the company to get out from under organizational conflicts of interest concerns. For TASC, the independence must have come as a breath of fresh air.

With its growth no longer limited by other work that Northrop had, TASC won new business with the Defense Department and other customers that need its technical analysis services.

Its biggest win was the FAA SE2020 contract worth $827 million to support the transition to NextGen air traffic control system.

It’ll be fun watching them in 2011 and beyond.

Who had the best year?

CGI Federal

I admit this reflects my personal bias because I love merger and acquisition news, but CGI Federal stepped up in a big way when it acquired Stanley for $1 billion.

Unlike most other major acquisitions, the two companies didn’t have much overlap so you didn’t have a lot of talk about “synergies,” that polite term for cuts. Instead, Stanley brought a whole new set of customers in the defense and intelligence world.

For Phil Nolan, Stanley’s CEO and the other senior executives, there had to be an immense feeling of satisfaction of having grown the company from a few dozen employees to hundreds. It was quite a ride.

Hopefully, we’ll see Nolan and others like George Wilson, Stanley’s executive vice president, reappear in the market sometime in the future.

– by Nick Wakeman – Dec. 22, 2010 – Federal Computer Week

December 16, 2010 By AMK

New Congress could put the brakes on insourcing

The 112th Congress is unlikely to let the Obama administration move full-speed ahead on its initiative to bring contractor jobs back in-house, a consultant and a Republican Senate staff member said on Thursday.

Jonathan Etherton, president and owner of the consultancy Etherton and Associates Inc. and a former Senate Armed Services Committee staffer, told an audience of contractors at a Coalition for Government Procurement breakfast he has heard at least three congressional panels plan to look at whether insourcing is being implemented strategically and whether agencies are focusing on critical positions.

Bill Wright, Republican staff director for the Senate Homeland Security and Governmental Affairs Ad Hoc Subcommittee on Contracting Oversight, noted insourcing is on the radar of ranking member Sen. Scott Brown, R-Mass. Brown is concerned the initiative is moving forward too quickly and without enough consideration of its effect on small businesses, Wright said during the breakfast discussion.

More generally, Brown is looking for ways to improve efficiency during times of mounting national debt, Wright said. The senator is developing an acquisition savings plan that could include expanding strategic sourcing, an approach in which agencies analyze purchasing trends and buy common commodities and services in bulk; rewarding high-performing acquisition teams; and promoting a more specialized acquisition workforce by requiring officials to obtain certifications in certain areas of expertise.

New Congress could put the brakes on insourcing Much of the subcommittee’s oversight work to date has been bipartisan, Wright added, and Brown is working with the administration on the efficiency initiatives.

Etherton noted, however, that Congress’ overall relationship with the executive branch is likely to grow more adversarial in 2011 with Republicans in control of the House and lawmakers aggressively scheduling oversight hearings.

In addition to insourcing, Etherton said, the next Congress is likely to examine implementation of the 2009 Weapons System Acquisition Reform Act; the relationship between the Defense Contract Audit Agency and the Defense Contract Management Agency; the definition of inherently governmental work; how to best ensure adequate contractor controls against waste, fraud and abuse; and how Defense Department savings initiatives will affect the industrial base.

Wright predicted lawmakers also would focus on transparency surrounding contractor profit incentives and subcontractor performance; tracking contract-related earmarks; and enhancing competition and limiting risk through fixed-price arrangements.

– by Amelia Gruber – Government Executive – December 16, 2010

December 13, 2010 By AMK

Now too much federal ‘insourcing’?

An Obama administration official said last week that some federal agencies had gone too far in using government workers to take over responsibilities from contractors.

Daniel I. Gordon, administrator for federal procurement policy at the Office of Management and Budget, said he has met with some agencies that misunderstood the government’s new “insourcing” policy and clarified that the administration is seeking only “targeted, limited numbers of positions” to move from the private to the public sector.

“We do not view insourcing as a goal,” he said. “What we were doing is rebalancing our relationship with contractors.”

Several contracting organizations have complained that some agencies were insourcing positions without regard to whether they will save money and improve efficiency, but merely to meet a quota.

Gordon said the government is focusing the conversion of its contracting corps in order to maintain its capacity to oversee and manage federal contracts.

“No corporation would agree to have somebody else running their entire operations,” he said at a breakfast hosted by the Bisnow media company. “There are far too many situations where we have yielded control of our own mission . . . to contractors. That needs to be fixed, but it doesn’t require massive insourcing.”

– By Marjorie Censer – The Washington Post – December 13, 2010

November 15, 2010 By AMK

Senior acquisition officials question procurement policy direction

Senior federal acquisition officials do not believe that many of the signature procurement policy changes the Obama administration and the Democratic Congress have implemented in recent years are adding significant value to the government’s mission, according to a new report from a pair of industry groups.

The biennial survey by the Professional Services Council, a contractor trade association, and Grant Thornton LLP, a business advisory firm, interviewed 33 officials from across government, including senior acquisition executives, congressional staff and oversight employees, on a host of topics.

On many key issues there appears to be a widening chasm between operational and oversight officials, but they generally concurred that the implementation of major policies and rules — from the insourcing of private sector functions to the push to use fixed-price contracts — were failing to meet their stated objectives.

“The idea of showing contract savings is nothing more than an accounting exercise,” said one interviewee. “When you have policy that doesn’t make sense to subject matter experts, you lose credibility,” another said. All the quotes were provided anonymously, although the officials interviewed were identified at the end of the report.

Stan Soloway, president of PSC, suggested that many senior acquisition officials supported the administration’s overall policy direction, but felt “neutered” by a one-size-fits-all execution approach.

For example, recent legislative and regulatory actions have shown a preference for fixed-price contracts above cost-plus or time-and-materials awards. In many cases, officials are required to provide lengthy written explanations when using the latter contract types. But the survey showed that 71 percent of respondents felt the fixed-price mandates had not resulted in better contract outcomes for the government or the taxpayer.

A similar disconnect between a policy’s intention and result was found in response to questions about insourcing. Many officials argued the concept, while necessary to restore core government capabilities, has not been conducted thoughtfully or strategically and might be moving too rapidly. Meanwhile, a whopping 94 percent of respondents said insourcing will hurt small businesses.

“Insourcing is moving too quickly and it is too focused on hitting metrics,” one interviewee said. “The administration is proceeding without a larger view of how the government does business. The decision should be strategic and not rushed.”

The redefinition of inherently governmental activities, one of the key procurement regulatory changes the Obama administration has embraced, also failed to impress senior acquisition officials.

Two-thirds of all interviewees said the March guidance from the Office of Management and Budget was not clear or actionable. As was the case with several policy proposals, many cited the lack of resources needed to implement the guidance.

The survey also revealed palpable frustration among acquisition and oversight leaders regarding implementation of the Recovery Act. Two-thirds of all respondents felt they were not provided adequate resources to comply with stimulus rules and that reporting requirements were neither manageable nor sustainable. Congress, however, has shown some support for implementing Recovery Act-type requirements for all procurements.

Retired Vice Adm. Lou Crenshaw, a principal at Grant Thornton, suggested that too much focus has been placed on regulatory compliance rather than operational outcomes. “This is rocket science,” Crenshaw said. “It’s a complicated process.”

As in previous surveys, enhancing, training and managing the acquisition workforce remain the biggest operational challenges in acquisition, respondents said. They noted that while the addition of direct hiring authority at some agencies has helped to a point, constant turnover, insufficient training and a reliance on interns have created functional concerns. Acquisition officials suggested the system might be improving, but oversight officials generally were more skeptical.

Contract administrators also appeared to be struggling under the weight of oversight mandates. Nearly 90 percent of those surveyed agreed more resources were devoted to back-end oversight than front-end contract management. Others suggested overly burdensome oversight was inhibiting innovation while stressing rigidity and a focus on lowest cost.

“Resources are absolutely not in balance,” one interviewee said. “They have thrown resources at [inspectors general] and auditors, but they have done nothing to facilitate contract administration.”

The divide was evident in other areas. More than 70 percent of operational executives said existing structures designed to prevent organizational conflicts of interest function effectively. Sixty percent of oversight professionals disagreed. The two sides also disagreed on the need to reform personal conflict-of-interest rules, with operational officials generally in favor of maintaining the existing structure.

While the report did not take sides on the respective issues, it did recommend improving the communication and collaboration between the oversight and operational communities, backing up policy directives with sufficient resources, and avoiding one-size-fits-all mandates.

– By Robert Brodsky – GovernmentExecutive.com – November 15, 2010

August 10, 2010 By AMK

Insourcing failed, DOD’s Gates says. Now what?

Defense Secretary Robert Gates has conceded the Obama administration’s insourcing push has failed to save money.

“We weren’t seeing the savings we had hoped from insourcing,” as the Defense Department brought work from the private sector in-house, he said Aug. 9.

Gates has unveiled a sweeping plan to save money in a variety of other ways, including cutting entire organizations and consolidating information technology.

“The problem with contractors is — and what we’ve learned over the past year — is you really don’t get at contractors by cutting people,” Gates said at a press conference about his departmentwide changes. He said contractors get the money from a contract and then hire as many as they think is necessary to do the work. “So the only way, we’ve decided, that you get at the contractor base is to cut the dollars.”

To make DOD more efficient and less expensive, Gates directed a reduction of funding for support contractors by 10 percent a year for each of the next three years. The goal is to reduce the number of contractors that are carrying out functions that are inherently governmental, or work that only a federal employee should do.

“I concluded that our headquarters and support bureaucracies — military and civilian alike — have swelled to cumbersome and top heavy proportions, grown over-reliant on contractors and grown accustomed to operating with little consideration to cost,” Gates said.

Gates’ plan is to also add no more full-time positions in the Office of the Secretary of Defense and other defense agencies after fiscal 2010 to replace contractors, except for critical needs.

The changes will hit many people in DOD as officials look to reorganize and save money.

Robert Hale, undersecretary of defense comptroller, on Aug. 9 shied away from giving a specific number of people who will lose their jobs as a result of the changes.

“We’ve done some internal analysis to help the secretary make the decisions. Now we need to go through the detailed implementation. Only after we’ve done that are we going to have a firm idea of the personnel changes. So it’s premature to give you a number,” he said.

After being pressed for a rough estimate, Hale said the Joint Forces Command has 1,600 civilian employees, 1,200 military personnel and 3,000 contractors. The Business Transformation Agency has more than 350 civilian employees. The secretary has recommended closing both organizations.

The Obama administration has pushed agencies to insource work — jobs that are inherently governmental functions or closely associated with those jobs. The president’s March 4, 2009, procurement reform memo lays out the insourcing agenda.

Gates’ changes come as he expects to receive less money in fiscal 2012 than what it costs to run DOD.

“To preclude reductions in military capabilities that America needs today and those required for the future, that spending difference will need to be made up elsewhere in the department,” Gates said.

— by Matthew Weigelt – Aug. 10, 2010 – Federal Computer Week

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