Insourcing: The Baker’s “Dirty Dozen”

Just over a year ago, Robert Gates announced a plan to add 20,000 employees to the defense acquisition workforce by 2015:  11,000 jobs converted from contractor-held positions and 9,000 new jobs.  He also announced plans to insource another 19,000 non-acquisition jobs currently performed by contractors.  That’s a total of 30,000 jobs insourced by 2015.  So who’s going to be affected by this insourcing push?

The OMB’s Acquisition and Contracting Improvement Plan and Pilots has three components:

• Achieve 3.5 percent in savings during FY2010 and 7 percent by the end of FY2011.
• Reduce the use of high-risk contracts for new procurements by a minimum of 10 percent this fiscal year.
• Identify organizations within each agency that may be over-reliant on contractors and pilot new processes to achieve the best mix of public and private labor resources

While the cost-savings and “high-risk contracts” mandates are troubling, their solutions generally focus on re-competes and bulk purchasing agreements as opposed to insourcing, as outsourcing is generally more cost-effective than insourcing.

What should be troubling for contractors is the OMB’s lack of a clear definition of what constitutes “over-reliant” on contractors.  In their report, they outlined thirteen areas where pilot programs were insourcing work that used to be contracted out:

1. Acquisitions.  This is the area where most insourcing will occur, with seven agencies (Commerce, Defense, Education, Interior, Labor, GSA and NASA) conducting pilot programs to insource acquisitions. The OMB’s report says that while contractors can be helpful in advising acquisition officers, “they must not perform inherently governmental functions, such as awarding contracts – nor should contractors be used as a substitute for the strong internal capacity required for an agency to provide sufficient management and oversight of its contractors.”
2. IT. Nine agencies are looking to insource at least part of their IT infrastructure support: USDA, the Department of Energy, DHS, HUD, the Department of the Treasury, VA, NASA, SBA and USAID. OMB reports that “most of these agencies reported that they are heavily reliant on contractors and question whether the agency has the ability to maintain control of its mission and operations,” adding that “frequent turnover of contractors at some of the agencies has caused further concern that institutional and technical knowledge will be lost.”
3. Veterans’ employment benefits.  The Department of Labor has relied on contractors to administer veterans’ assistance programs, like the Homeless Veterans Reintegration Program and the Jobs for Veterans State Grant program.  DOL is “assessing if the mission and requirements of these programs are effectively served by the current mix of in-house and contractor support,” according to OMB.
4. Foreign labor certification.  The Department of Labor currently contracts out the processing of foreign labor certifications that employers use to bring skilled workers to the U.S.  According to OMB, DOL’s early analysis is in favor of insourcing foreign labor certification work, and that contractors are “more restricted in the number of roles they can perform due to the inherently governmental nature of many of the certification functions.”
5. Transportation benefits.  There’s a pilot program underway at DOT to look at insourcing the distribution of federal transportation reimbursements, if it’s successful, those contracts might evaporate.
6. Federal Occupational Health (FOH).  FOH is an HHS initiative that provides support to federal agencies to increase OSHA compliance and relies heavily on contractor support, and HHS is looking at the feasibility of insourcing it.
7. EPA Superfund field support.  The Superfund, EPA’s hazardous waste clean-up program, is heavily reliant on contractors, so EPA is running a pilot program to insource support for it.
8. Federal financial audits. DOJ’s Consolidated Quality Assurance Audit Team is working on insourcing DOJ financial audits according to OMB, citing “continuity of knowledge” and the possibility that contractors might be performing “inherently governmental” work.
9. Management support.  The State Department’s Bureau of Administration’s Directives Management Office, which publishes and maintains the Foreign Affairs Manual and the Foreign Affairs Handbook, is examining whether it has outsourced “inherently governmental” work according to OMB.
10. Disability hearings.  The Social Security Administration is reviewing support services contracted by its Office of Disability Adjudication and Review and is conducting a pilot program to see if its backlog can be more efficiently handled by federal employees.
11. Clerical support. OPM is looking at bringing clerical and technical support services that were outsourced in 2004 back into government.  There’s no pilot mentioned in OMB’s report, just a “comparison” between results since the work was outsourced in 2004 and work conducted by federal employees before ’04.
12. Consulting services.  The National Science Foundation is reevaluating its “mix” of federal and contractor employees.
13. Computer security.  The Nuclear Regulatory Commission (NRC) is reorganizing its cybersecurity task force in response to a much greater than anticipated workload.  A pilot is currently underway to determine the best balance of federal and contractor personnel.

Looking at this list, it’s clear that insourcing “isn’t a matter of theology” for the federal government, as Gerry Connolly put it.  OMB is clearly open to outsourcing if there is a proven cost savings.  After all, priority one is achieving a 3.5% cost savings in fiscal ’10.  However, OMB isn’t about to let agencies contract out all of its workload in any particular area, based on their requirement that agencies not be “over-reliant” on contractors, even when they aren’t performing “inherently governmental” work.

So it looks like we’ll have to wait and see how these pilot programs help the government cut costs.   If they don’t, contractors might not have much to fear from the push for insourcing.  But if they do, at least USAJobs.gov got a snappy new redesign earlier this year to make it more user-friendly.