Think twice before insourcing government work

A report says the Obama administation should be careful before taking jobs from contractors and giving them to agencies

The Obama administration and Congress should proceed cautiously as they attempt to take work away from contractors and hand it to agencies' employees, according to a report released today.

“A rush to insource thousands of positions, while trying to take on ever more government programs, can end in disaster,” wrote Raj Sharma, president of the Federal Acquisition Innovation and Reform Institute, in a report titled "The Move to 'Insourcing'…Proceed with Caution."

Agencies should concentrate first on removing contractors from jobs already defined as inherently governmental and duties central to agencies’ missions, the report states. At the same time, officials need to consider insourcing other jobs in longer-term phases, he wrote, adding that the government can handle the shifting load much easier in stages rather than all at once.

“Rushing to undo what has been in the making for years — perhaps decades — will be counterproductive,” Sharma wrote.

Moreover, taking work from contractors must be done deliberately and based on facts, not innuendo and rhetoric, he wrote.

President Barack Obama often depicts contractors as taking advantage of the government.

However, contractors are a major component of how the government operates, Sharma said, and they often perform work that requires specialized expertise, Sharma added.

“The current rhetoric that demonizes all contractors, instead of those few that are guilty of fraud and abuse, will only deter the best suppliers that we so badly need from competing for government business,” he wrote.

He added that an essential component of success for Obama’s plans for health care reform, energy independence and social innovation will be the technical expertise, innovation and scale that industry can bring.

Meanwhile, experts say experienced federal employees are attractive to private-sector companies, which often offer more to those employees than the government does. Also, a large number of government employees are nearing retirement, and agencies’ acquisition jobs are remaining vacant because few people are seeking those jobs.

Obama’s calls to join public service can only do so much to help find people to do the work, Sharma wrote. The government needs to reconsider its recruiting efforts, pay and professional development policies to make them competitive with the private sector before agencies dramatically insource jobs.

“While it may be feasible to hire thousands of people during the current economic downturn, it will be difficult to retain this talent unless systemic human-capital issues are addressed,” he wrote.

Sharma said officials should answer the following questions before bringing work in-house:

Which positions should be insourced?
How and when should they be insourced?
What will attract the people needed to do the jobs once they are brought in-house?
How will the government retain the employees who are doing the insourced jobs?

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Obama wants contracting overhaul

The way government agencies acquire the goods and services needed to carry out their responsibilities will take an abrupt 180-degree turn if President Barack Obama gets his way.

Obama made it clear last week that he wants to abandon the Bush administration’s drive to push more federal work into the private sector and, at the same time, toughen on contracts that he considers prone to exploitation by companies and wasteful to agencies.

“It’s time for this waste and inefficiency to end. It’s time for a government that only invests in what works,” Obama said in a news conference March 4. The same day, Obama signed a presidential memo putting the overhaul into motion.

The president’s push to have agencies interact differently with contractors is a sea change from the Bush era. Departments have become overly reliant on contractors, Obama's memo states. As a result, government spending through contracts has more than doubled since 2001, reaching more than $500 billion in 2008.

Obama would put more obstacles in front of contractors who might want to cheat the government with substandard work. And he plans to “in-source” federal work, a process of identifying outsourced work and bringing it back into agencies.

Furthermore, he’s moving away from cost-reimbursement and no-bid contracts by demanding that agencies use fixed-price contracts as much as possible.

The unexpected scope and sweep of Obama’s directive took Washington’s procurement community by surprise and prompted a wave of criticism from outside contractors and acquisition officials inside the government. Obama’s campaign rhetoric against procurement abuse might play well with the mainstream press and the general public, they say, but he’s missing some of the most crucial problems that plague federal procurement.

Critics say Obama’s proposals would do little to stem an explosion in the use of of task and delivery orders rather than full contracts. And it does not seem to offer any relief to an already stressed acquisition workforce.

“In an area as technical as procurement, it is not a good idea simply to translate campaign rhetoric into the nuts-and-bolts of government management,” said Steve Kelman, administrator of the Office of Federal Procurement Policy from 1993 to 1997 and now a Harvard University professor, on his FCW.com blog, "The Lectern."

A major point of contention is the administration’s negative view of no-bid and cost reimbursement contracts. Although Obama’s memo cites the increase in those contract types, he misses the larger picture, Kelman said, which is all contracting has increased significantly in that span of time. According to an OFPP memo from 2008, the proportion of contracts that are fully competed has remained steady at more than 60 percent from 2003 to 2007.

“It is a higher priority to seek to increase [the] use of performance and cost incentives in cost-reimbursement [or time-and-materials] work than to attack cost-reimbursement contracting per se across the board,” Kelman wrote.

Obama said the Office of Management and Budget will issue governmentwide guidance by Sept. 30 on the appropriate use and oversight of sole-source and other types of noncompetitive contracts. He said the amount of money funneled through those types of contracts jumped from $71 billion in 2000 to $135 billion in 2008, which is a 47 percent increase. He instead wants to see more full-and-open competition for contracts.

Furthermore, OMB will develop more detailed guidance by July 1 to help agencies review their existing contracts to find the wasteful ones that are unlikely to meet their needs, the memo states.

“We will end unnecessary no-bid contracts and cost-plus contracts that run up the bill that is paid by the American people,” Obama said. He predicted his reforms would save the government $40 billion each year.

While those reforms might save money, experts said more dramatic savings could come from a well-educated and better-trained acquisition workforce. Obama needs to make training the workforce the paramount priority, not simply curtailing certain types of contracts, they say.

“That’s got to be the central theme,” said Robert Burton, former deputy Office of Federal Procurement Policy administrator from 2001 to 2008 and now partner at Venable law firm.

Many acquisition employees don’t fully understand the 1,949 pages of the Federal Acquisition Regulation and their agencies’ own regulatory supplements, Burton said. Training them to improve their understanding of and adherence to the laws could solve many contracting programs, he said.

Meanwhile, task and delivery orders are increasing with little guidance, Burton said. Today, more than 50 percent of the federal contracting expenditures go through huge task and delivery orders. Core problems exist with these orders, such as poorly defined requirements that are often out of scope of the contract, and limited competition for work. It’s an area that needs more guidance, he said.

Similarly, a panel of former Defense Department acquisition officials told senators last week that knowledgeable and experienced acquisition employees are the solution to improving programs and controlling costs.

Fixed-price contracts have a role in federal contracting, but contracting officers need a wider range of options, several government acquisition executives said. Officials should not discourage the acquisition community from using other appropriate contracts that might suit specific needs.

Still, experts say departments’ contracting officers must support the White House’s changes if agencies expect better contracting decisions and savings. Michael Sullivan, director of acquisition and sourcing management at the Government Accountability Office, said memos and legislation might not achieve the goals unless departments transform the overall acquisition culture.

Ray Bjorklund, a military officer and Defense Department acquisition official from 1971 to 1998 and now senior vice president and chief knowledge officer at FedSources, said Obama is aggressively pushing agencies to choose the right type of contracts.

Angela Styles, OFPP administrator from 2001 to 2003 and now partner at Crowell and Moring’s Government Contracts Group, said Obama might have hampered his efforts by over-generalizing the motives of contractors. The president will need good contractors to drive the initiative forward, cooperation that he might be less likely to get if they feel offended that he appeared to characterize all contractors as mercenary and untrustworthy.

“If you make one false turn as a contractor, you will be brought to your knees by the full power of the U.S. government," Styles said. "It is not a great place to be. The vast majority of government contractors understand that what they do is for the taxpayer and to make the federal government work better.”

Bringing the work home

Obama said he wants to limit the outsourcing of federal work, whereas the Bush administration sought to increase it. The question, as always, turns on the definition of inherently governmental work, which is work that only federal employees can properly do.

The fiscal 2009 Omnibus Appropriations Act already passed by the House would require a clarification of those functions. The Senate had not passed the bill as of March 6, but Obama has made limiting outsourcing a priority to pursue regardless of the bill's fate. The legislation would make it easier for agencies to pull work back into the agencies and away from contractors.

And so it appears that Obama, with the vocal support of Democrats in Congress in addition to Republicans such as Sen. John McCain of Arizona, is fundamentally changing the relationship between the public and private sectors. And it would also appear that the tide is in his favor. Several members of Congress made statements of support for Obama, and many of his proposed reforms are already incorporated in the current Defense Authorization Act, which President Bush signed last year.

“We must put an end to no-bid contracts and dishonorable procurement practices that are often the root cause of waste, fraud and abuse of taxpayer dollars,” said Rep. Edolphus Towns, (D-N.Y.), chairman of the House Oversight and Government Reform Committee.

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IG: Job competition saps staff

DOD auditor’s report sends clear signal on what the acquisition workforce needs

A team of Defense Department auditors, through a series of surveys at military bases, has determined several foundational acquisition workforce issues that experts say must be priorities for President-elect Barack Obama’s administration.

Officials told auditors from the DOD Inspector General’s Office that competitive sourcing — a process intended to improve efficiency by having federal employees contend with private sector firms for work — saps their employees’ attention from their jobs and leaves offices with insufficient contracting support.

Because competition pulls employees from their regular duties to rigorously gather and analyze data, managers are reluctant to take part in the process. Advocates of competitive sourcing argue that government organizations usually win the competitions and become more efficient in the process.

When the private sector wins, agencies usually lose their experienced workers, according to the IG report released Jan. 5.

More importantly, an Army Contracting Agency official told auditors that the agency faces constant turnover of contracting officers during competitions. Agency leaders worry about getting and keeping competent contracting officers — especially as purchases become more complex — but the practice intended to compel efficiency can drive away talented ones.

OMB’s influence

The IG auditors conducted the review at the request of members of Congress who want to ensure that the Office of Management and Budget has not been influencing DOD’s decisions on whether to conduct a public/private competition. The competitions are possible only for jobs that are not inherently governmental function, which only federal employees can do.

Military officers and the officials in charge of overseeing the competitions told the auditors they felt no pressure from OMB, according to the DOD IG report titled “Office of Management and Budget Influence Over DOD Public-Private Competitions.” The fiscal 2008 National Defense Authorization Act required the report.

The auditors concluded that early in 2008, the Office of the Secretary of Defense (OSD) had put pressure on the Army to conduct the competitions, but the pressure waned by the end of the year. Meanwhile, officials at the Army Materiel Command and Army Installation Management Command said the chain of command pushed them more than OSD or OMB did, according to the report. The two major commands announced their competitions because of pressure to reach a goal that the Army already set.

Wayne Arny, deputy undersecretary of Defense for installations and environment, told the auditors that DOD independently determines its competitive sourcing program.

During the normal program and budget review process, the service branches create plans for public/private competitions.

The defense agencies are expected to carry out those plans, he said.



Arny added that competitive sourcing is an important management tool, and he encourages agencies to continue to use it as much as possible.

“Competitive sourcing consistently results in greater government efficiency and cost-savings to the taxpayer,” he wrote in a March 2008 memo. DOD saved more than $7 billion from competitions completed between fiscal 2000 and 2007, Arny said. The number could top $10 billion after the competitions started in 2008 are finished, he wrote.

A controversial initiative

Competitive sourcing is the second initiative on the Bush administration’s President’s Management Agenda. Administration officials believe the competitions decrease costs and trim a department’s operations.

Setting up the competitions can determine if it’s better to keep the work with federal employees or outsource it to contractors, officials say.

In the last Executive Branch Management Scorecard issued by OMB, released last week, only the Smithsonian Institution improved. Twenty-two of the 24 graded agencies received the top score or an average grade. The Energy Department and National Science Foundation again earned the lowest rating.

The sourcing initiative has never had widespread support: Congress steadily imposes limits on it. Army and Air Force officials said the congressional restrictions on competitive sourcing change every year, making it difficult to keep up with the laws and regulations while in the process of hosting the competition, according to the IG’s report.

Numerous laws have restricted the use of competitive sourcing, effectively stopping the practice. The fiscal 2008 National Defense Authorization Act restricted OMB and the defense secretary from influencing DOD regarding competitive sourcing, and it also required the IG review.

The competitive sourcing initiative is now called commercial services management and includes business process re-engineering along with the competitions.

Some experts have questioned whether the initiative would survive during the Obama administration, but the president-elect is looking for areas where he can cut costs and save money.

“Change and reform can’t just be election-year slogans,” Obama said. “They must become fundamental principles of government.”

Challenges for Obama

Competitive sourcing is only one issue that awaits Obama’s pick for the administrator of the Office of Federal Procurement Policy, experts say.

“The need for an acquisition workforce that can navigate the government’s contracting process, translate it for government buyers and private-sector contractors, and ensure the taxpayers get what they pay for has never been greater,” said Diane Denholm, a principal at Grant Thornton.

She recommended that the new administrator work with agencies to find ways to fill gaps with available resources. The administrator also should work with chief acquisition officers to learn what skills employees need, then maintain those skills with regular training.

A survey conducted by the Professional Services Council and Grant Thornton, which was released in December, showed the acquisition workforce’s continued concerns about recruiting, training and retaining the right people.

Stan Soloway, the council’s president, said the survey provided no surprises or raised new issues but showed lingering concerns that need a resolution.

The council and Grant Thornton said the Obama administration should view its procurement policy initiatives through the lens of strategic human capital planning.

“The future workforce needs to have the capability to provide innovative risk-based approaches to assist the agencies [as they] acquire products and services in a way that maximizes performance and minimizes costs,” said Denholm, who was involved in analyzing the survey’s results.

The need for a larger, better trained workforce is obvious, said Trey Hodgkins, vice president of federal government programs for the Information Technology Association of America.

“It’s a broader set of skills that we need to attract and retain,” he said. However, the broken hiring system is a major hindrance to bringing people in.

The system is another challenge awaiting the OFPP administrator, who will have to work with other agency officials to solve that problem.

A simple request

Many people in government acquisition consider success to be hiring the right people and training them well. Denholm said the survey respondents described success in terms of day-to-day operations rather than the rare award of a major contract.

According to many respondents, the workforce might be unprepared for the changing environment.

Acquisition is becoming more complex, and the volume of procurements has put new demands on contracting officers. Several interviewees stressed the need for better training in areas of business, analytical and management skills, the survey states.

“The current acquisition workforce doesn’t have sophisticated business judgment,” an oversight official said in the survey. “They are good at following the rules, but when the rules lead you to an illogical conclusion, you need judgment. Acquisition is more of an art than a science."

Read the story: FCW.com News - IG: Job competition saps staff

Competitive sourcing gets a new name

Competitive sourcing no longer carries that name. The system's new name is "commercial services management," officials said today.

With the name change, acquisition officials are recognizing the ways agencies are trying improve their commercial operations, according to the Office of Federal Procurement Policy. Also, agencies are using several techniques to do so, such as competitive sourcing, OFPP said in a memo released today.

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Bill would halt competitions for a year

A House appropriations bill in its early stages seeks to block use of the public/private competition system for a year and let next president deal with the issue, a House member has said.

Rep. José Serrano (D-N.Y.), chairman of the Financial Services and General Government appropriations subcommittee, said June 17 the governmentwide provision would halt "this administration’s controversial and detrimental federal workforce program.”

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GAO disputes savings reports

The Bush administration’s competitive-sourcing policy took a hard smack from the Government Accountability Office less than three weeks after Office of Management and Budget officials publicized one agency’s success story about saving an estimated $100 million a year from that initiative.

The Agriculture Department’s Forest Service reported savings of $38 million from competitive sourcing based on three public/private job competitions between fiscal 2004 and 2006. However, the agency spent an estimated $40 million on transition costs in 2005 and 2006 to restructure its information technology infrastructure for one of the competitions.

That cost is $5 million more than the $35 million in savings that the agency reported to Congress, according to a GAO report issued Feb. 21.

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GAO: Forest Service falls down on competitive-sourcing job

The Forest Service did a poor job of competing government jobs between federal employees and the private sector and of reporting savings, according to a new report.

The Government Accountability Office said today that the Agriculture Department’s Forest Service lacked a strategic plan and guidance for its public/private competition for communications work, the Geospatial Service and Technology Center, and fleet management.

USDA officials told Congress the agency saved more than $38 million between 2004 and 2006. However they couldn’t tell GAO how they arrived at that figure or give supporting data to prove it’s correct, GAO said.

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IT budget request focuses on savings

The Army Corps of Engineers expects to save $500 million over five years by consolidating information technology services, a strategy that enabled the corps to lower its fiscal 2009 IT budget request by $221 million compared with this year’s enacted funding.

President Bush’s proposed budget for the corps reflects a 36 percent decrease, the largest percentage among all agencies. Congress gave the corps $613 million in its 2008 omnibus spending bill, but the corps requested only $392 million for next year, budget documents show.

Much of the decrease can be attributed to the corps’ plans to shut down incompatible data warehouses and consolidate help-desk operations so that 56 installations can operate as a single enterprise. The streamlining “really forced us to sharpen our pencils,” said Wil Berrios, the agency’s chief information officer.

The corps’ approach is one example of a larger theme throughout the IT budget.

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Competitive sourcing fight isn't over

The Bush administration wants to stop Congress’ efforts to end public/private job competitions and it used the president’s fiscal 2009 budget request as its latest weapon.

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Denett: Proposed bills include "poison pills" for competitive sourcing

Lawmakers are working on several major bills that could undermine the Bush administration's competitive-sourcing initiative, according to the government's top procurement official.

Language in those bills would make it difficult to create a fair environment in which federal employees and private companies compete for non-inherently governmental work.

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Senate amendment aims to restrict competitive sourcing

The Defense Authorization bill passed by the Senate Oct. 1 includes provisions that would restrict competitions between private contractors and government employees for federal work, a practice the Bush administration advocates as a way to save money.

An amendment Sen. Ted Kennedy (D-Mass.) added to the Fiscal 2008 National Defense Authorization Act seeks to level the playing field for civilian defense employees in public/private competition, known as competitive sourcing under Office of Management and Budget Circular A-76.

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A-76 is a tough sell for OMB

Competitive sourcing has become an even tougher sell on Capitol Hill now that lawmakers attribute the unsanitary conditions at the Walter Reed Army Medical Center’s Building 18 to an exodus of federal workers after a private company took over maintenance work.

Paul Denett, administrator of the Office of Management and Budget’s Office of Federal Procurement Policy, must persuade lawmakers that the policy is a good one, despite their outrage about conditions at Walter Reed’s outpatient facilities.

Competitive sourcing pits federal employees against the private employees in job competitions regulated by OMB policy, known as Circular A-76. About 6,680 federal employees who do work similar to that performed in the private sector had their jobs put up for public/private competitions in fiscal 2006.

Read rest of the story: FCW.com News - A-76 is a tough sell for OMB

OMB: 2006 competitive sourcing could save government $1.3B

Public/private competitions in fiscal 2006 could save the government about $1.3 billion in the next five to 10 years as competitive sourcing pushes agency employees to become more efficient, according to the latest results in the Office of Management and Budget's competitive-sourcing report.

The estimated total savings based on the 1,243 competitions completed between fiscal 2003 and 2006 could reach about $6.9 billion in five to 10 years and yield about $1.1 billion in savings annually, the report states. Officials believe savings will continue to grow as agencies conduct more competitions and apply cost control and other performance improvements to more commercial activities, the report states.

Read rest of the story: FCW.com News - OMB: 2006 competitive sourcing could save government $1.3B

Feds stay competitive

Federal employees beat private contract employees in 19 of 22 public/private job competitions that four science agencies conducted from fiscal 2003 through fiscal 2005. Science agency officials said insider knowledge gives agency employees an advantage over their private-sector competitors.

The Office of Management and Budget’s Circular A-76 policy allows companies to take over certain jobs performed by federal employees if they can do the work more efficiently.

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