Procurement

OFPP gets an earful in debate over outsourcing

Joe Jordan

OFPP Administrator Joe Jordan (file photo)

When Joe Jordan, administrator of the Office of Federal Procurement Policy asked for comments on the matter of measuring costs in public-private sector competitions – specifically, on the practice of comparing the relative costs of performance by federal employees versus contractors to identify which is more cost-effective -- the audience at the March 5 public meeting was not shy to respond.

J. David Cox, national president of the American Federation of Government Employees, testified at the meeting that the Defense Department has its own cost-based insourcing process, and that Defense officials have said it has led to plenty of savings. Meanwhile, civilian agencies have been waiting since 2009 for the Office of Management and Budget to develop its own method or adapt to DOD’s.

Cox strongly disagreed with the decades-old policy based on OMB Circular A-76, an approach to analyzing insourcing versus outsourcing work. That policy allows federal agencies to outsource certain tasks if the private sector can perform them more cost-effectively than the government can. Congress put a stop to that approach, called competitive sourcing, in 2009.

"During the Bush administration, Congress, in bipartisan fashion, shut down the A-76 process in certain functions and certain agencies before shutting it down across the entire federal government because the process had been used politically and punitively," Cox said.

At the same meeting, the Professional Services Council renewed its call for a level playing field in making sourcing decisions. Alan Chvotkin, PSC’s executive vice president and counsel, said that where such comparisons are used, they must be comprehensive, fair, complete and consistently applied.

"There may be policy reasons for making a sourcing decision, but when a decision is made to conduct a cost comparison analysis, that analysis must be able to withstand rigorous review," he said.

Cox pointed to concerns that DOD’s inspector general and the Government Accountability Office have raised in the past about A-76. "It needs to be fixed," Cox said. "There is a costing methodology that can be used for insourcing that was developed by DOD."

DOD’s procedures include a list of cost elements and methodologies for estimating and comparing full costs of military and civilian manpower and contract support. It provides data sources and calculations for direct labor costs. It also has a list of the kinds of goods, services and benefits that officials should consider when estimating costs.

In the meeting, OFPP was gathering input based on Congress’ order that OMB consider the impact of insourcing on small businesses. Jordan also sought comments on whether small businesses should be treated differently than large contractors when an agency explores insourcing a project.

In written testimony, Cox said agencies should consider small business contracts for cost-based insourcing after all other contracts have been reviewed for possible savings. He also noted that small businesses already have their advocates in agencies.

"Any further biases are unthinkable without comparable and countervailing biases for similarly sympathetic subsets of federal employees" such as veterans or single parents, he said.

Chvotkin said an accurate assessment of costs needs five pieces. Agencies should capture all costs or explicitly say what costs they plan to request from all parties. They should also compare all of those costs or clearly say which costs they will not be compared. It is essential that officials apply the uniform comparison method for repeatable analyses. Furthermore, agencies should disclose all results and hold whoever is doing the work accountable for their performance.

The process must have a preference for competition, and the issue needs a new taxonomy for achieving sound cost comparisons. The Center for Strategic and International Studies recommended it in 2011 in a comprehensive analysis on the issue to date.

"Cost comparisons should not be political and should not be used to tilt the analysis in favor of either the public sector or the private sector," Chvotkin said.

After the meeting, Jordan said several different ideas came up from a variety of stakeholders representing prime contractors, federal employees, and good-government groups.

"The discussion has given us much food for thought, and I look forward to receiving the written public comments and working with stakeholders as we consider the proper role of this management practice," Jordan told FCW.

Reader comments

Thu, Mar 7, 2013 SPMayor Summit Point, WV

In my opinion, a balanced or reasoned cost comparison of contractor and Federal employees will be difficult to achieve but not impossible to achieve. As any discussion on the topic will bear out, it is the general perception, appropriately, that Government can not capture any where near its true cost of performance. While it may sound like an anal retentive response, I think better management and aggregation of costs by the object class structure of the finance systems might move things in the right direction. The OC structure is usually used throughout the organization to capture high level and program/office specfic indirect costs. These costs may be segretated into commonly understood labor OH, operational OH and G&A pools [while not an absolute parallel to the cost accounting structure used by contractors it providces a pathway to start the comparison].

Thu, Mar 7, 2013

Its too bad the author doesn't know there is a difference between outsourcing and public-private competition. Using outsourcing in the title of this piece is misleading. Of course FCW and others love to excite the public with misleading information.

Thu, Mar 7, 2013 John

To be a really fair cost comparison, Agencies need to consider not only the cost of health and retirement benefits, but also other support costs, like: • HR and payroll staff needed to support employees doing the work; • Rent for office space; • Equipment (computers, copiers, office furniture, etc.); • Other costs like telephone service and internet; • Training; and • PTO - Holidays leave and sick days. A mid-grade federal employee (3-15 years) gets 40 days/8 weeks off per year (18.5 days’ vacation, 12 sick days and 10 holidays). These costs are generally all rolled into the contractor labor rate. Additionally, when hiring contractors, the RFP/SOW may state specific qualifications and skills required. In many cases, federal employees need additional training to perform new functions, especially those involving new technology. It is also much easier to replace unskilled or non-performing contractor personnel than it is to replace feds.

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