The Outsourcing Debate: Realism versus Rhetoric

The Federal Acquisition Innovation and Reform (FAIR) Institute, a new nonprofit focusing on federal contracting reform, released a report in response to the push by the Obama administration to reevaluate when it is appropriate to outsource and use contractors. Specifically, the report provides high-level policy guidance on the specifics of President Obama’s March memo on contracting reform, which directed OMB to issue guidance on the appropriateness of outsourcing, in addition to providing further guidance on defining “inherently governmental” positions.

The report describes some good recommendations on the insourcing issue by taking a deliberate and systematic approach based on facts and analysis. In effect, they are advocating a business case analysis, which I also believe is the best approach and serves the needs of all parties involved in a fair and thorough manner. Although there seems to be quite a bit of reporting on the consternation this issue has caused in exacerbating the anti-contractor sentiment that seems to be fomenting in government, the policy does need to be weighed carefully to ensure the government does not completely hamstring itself and be in the position where the mission is completely in jeopardy.

What seems to be missing from the conversation in the anti-contractor discussions is the fact that neglect and inattention by federal leaders has created an environment where contractors are necessary due to the lack of trained, qualified federal personnel to complete acquisition tasks. The report lists several reasons:

* Inattention to “right sizing” and “right skilling” the government workforce to support the growth and complexity of its workload.
* The antiquated and uncompetitive government personnel system, including hiring processes and pay scales, that can leave contractors as the only source of capabilities available to agency management.
* Underinvestment in training and developing people to ensure that they have the skills to perform their jobs.
* “Competitive sourcing” program that has led to outsourcing of some positions based on a complex “make vs. buy” analysis (A-76 studies).

Contractors are hired simply because the government does not have the flexibility to hire the right people, at the right time, for the right position. Therefore, hiring contractors, or “outsourcing,” remains the only alternative to obtain personnel. Instead of a focus on vilifying contractors, I believe the conversation can and should be more constructive to find common ground for common sense approaches to long-term solutions to these issues, and thus the point of the FAIR report.

Looking inward at systemic and cultural issues is one the first things that needs to be done if real change in personnel policies will have any effect on acquisition reform:

…To bring talented people into government in large numbers, federal employment must once again become attractive. President Obama’s call to service certainly has heightened interest in public positions. But that by itself won’t be enough. Federal recruiting, compensation, and professional development policies and processes must change and become competitive with the private sector. 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…

Workforce development is a strategic imperative, and not a short-term fix. The federal government must reinvent its human capital strategies to see real change. The report also tackles three types of positions that should be considered for possible insourcing: inherently governmental positions, agency core competencies and long-term contracted positions.

The report cites Policy Letter 92-1, which characterized inherently governmental activities by definition

…governmental decision making because they are so intimately related to the public interest that no ulterior motivation can be allowed to arise concerning those choices and those activities…

The policy letter makes the distinction between inherently governmental and those supporting activities that contractors can provide by stating:

Inherently governmental actions do not normally include gathering information for or providing advice, opinions, recommendations, or ideas to government officials. That distinction allows the government to take advantage of private sector analysis and expertise while remaining fully in charge and in command of the decision-making.

What the report further recommends, and what is vital to ensure the inherently government function wall is not breached, is creating that strict firewall through clear and documented roles and responsibilities of any contractor personnel that are supporting activities that are closely related to inherently governmental functions (e.g. acquisition). It is when this firewall is not established that the breakdowns normally occur, and government outsources its decision making authority to contractors. The single, most important recommendation is to clearly define roles and responsibilities upfront during post-award contracting activities, as reported by the GAO on many occasions.

Agency core competencies are the second category the report outlines. This category has always been challenging to define, as subjective analysis was always used to verify what agencies considered a core competency. However, the report recommends an analysis methodology that needs to be considered to ensure a realistic approach is employed to find true definitions and impacts on core competency through an objective lens.

Value stream analysis, a common tool used in Lean Six Sigma and continuous improvement programs, can help identify activities that should be staffed with federal employees. Through value stream analysis, an agency can break down functions (such as finance, IT or acquisition) into major activities, which can be profiled relative to key decisions made, supporting analysis, information and expertise required, and expected level of activity throughout the fiscal year (among other categories). By adding the other criteria (i.e. mission related technical expertise, scale and efficiency, etc.), agencies can systematically determine core competency positions.

These types of measures should be used in the business case analysis, with a focus on cost versus benefit, and long-term financial analysis to also verify the “make/buy” decision when it comes to outsourcing positions. The report gives an example through systems engineering activities at DoD for weapons systems development, another subject area of GAO reporting on the core competencies that the Pentagon needs to retain in-house to maintain control of the decision making process.

The third item in the report is long-term contracted positions. In identifying these positions, FAIR recommends a policy that takes into consideration the duration and time frame for the positions being considered (e.g. requirements for at least an additional five years), focus on a cost/benefit analysis for most efficiency, and a continued focus on hiring and retention.

Although this pragmatic approach by FAIR is a good blueprint for further discussion on addressing the issues faced in the federal acquisition arena, the overarching issue is people. According to the Project on Government Oversight, some of the negative reaction seems partly motivated by perceived ulterior motives of the FAIR Institute itself. POGO seems to imply that the FAIR board includes members with current or past ties to industry, and thus should be treated with a watchful eye. I have no problem with this criticism, but I caution that this attitude seems to exacerbate the vilifying of contractors and does not move discussion forward in a productive manner. Based on what I have seen so far, I look forward to further work by FAIR.