11December 4-5, 2006Sheraton Premiere at Tysons CornerVienna, VA

Breakout Session # 707

Professor Steven L. Schooner Daniel S. GreenspahnThe George Washington University Law SchoolApril 15, 2008

4:30 Session

Too Dependent on Contractors?W. Gregor Macfarlan Excellence in Contract ManagementResearch and Writing Program:

Outsourcing: The Current Reality

DHS: A Portrait of Outsourcing

Tax Day: Competing Views

“I pay my tax bills

more readily than

others for… I get

civilized society for it.”-Oliver Wendell Holmes

vs.

Optimistic Pessimistic

Tax Day: Competing Critiques

vs.

Nations maximize wealth through free markets and limited taxes

-Adam Smith

The IRS has no legal

authority to collect taxes -Wesley Snipes

Tax Reality: Where Your Money Goes

• Adam Smith: a profit motive fosters innovation and efficiency better than a public service ethic

• U.S. Spending: nearly 50% of the federal discretionary budget goes to government contracts

Outsourcing and Privatization: Bipartisan Trend

“The era of big government is over.”

“Too much government crowds out…the private economy.”

$100

$150

$200

$250

$300

$350

$400

$450

2000 2001 2002 2003 2004 2005 2006 2007

Federal Procurement Spending Since 2000 (in Billions)

Cumulative Growth in Federal Procurement Dramatically Outpaces Inflation

0%

20%

40%

60%

80%

100%

2001 2002 2003 2004 2005 2006

Federal Procurement Consumer Price Index

Outsourcing and Privatization: Growth Areas

• Tax Collection

• Health Care

• Education

• Welfare

• Prisons

• Info Technology

• Disaster Relief

• Police

• Border Security

• Port Security

• Foreign Operations

• Military Operations

Debate on Privatizing Our MilitaryGoes Mainstream

Battlefield Contracting:An “Unprecedented” Industry?

• 180,000 contractors in Iraq

• 1:1 ratio - contractors to troops

• Multi-billion dollar industry

• 25% of allied fatalities in 2007

4,507 “Total” Fatalities:What About the 1,120 Contractors?

Big Picture:Procurement Pressure

• Statutory Cuts: 1989-2000 workforce reductions

• Post-9/11: huge procurement spending growth

Defense Acquisition Workforce and Procurement Trends

100

200

300

400

500

1990 1999 2004 2006Acquisition Workforce (in hundred thousands of employees)

DoD Procurement (in billions of dollars)

Hollow Procurement and Contract Management Shops• DHS has “no in-house ability to

evaluate the solutions its contractors propose”

• “In Iraq, contract management . . . was a ‘pick up game’ ”

30%

35%

40%

45%

50%

55%

60%

2000 2001 2002 2003 2004 2005 2006 2007

Federal Procurement Dollars Awarded Through Limited-Competition Since 2000

Tying It Together

• Taxes: tax evasion flourishes because of an under-funded enforcement agency

• Procurement: purchasing regime is more prone to error, fraud, waste, and abuse with hollowed-out and under-funded agencies

Is the Government “Too Dependent” Upon Contractors?

• That’s Irrelevant– Too many mandates, too few government employees– Pressure to suppress government headcount– Outsourced governance (and the blended workforce) is

the reality, and here to stay….

• The better question, therefore, is:

Can the Government responsibly manage its “outsourced workforce”?

Outsourcing Makes Sense• Maintain focus on mission - specialization

• Surge capacity

• Flexibility

• Innovation, access to technical expertise

• Continue to meet agency missions with inadequate personnel, abilities, and resources

Outsourcing is “Attractive”to Program Managers

• No troop/personnel caps

• Customer Service “ethic”

• Civil Service frustration

Penny-Wise, Pound Foolish?

• Marginal cost saving (in a vacuum) is not the only metric

• Best value – Paying more for:– Higher quality goods/services– Quicker delivery/response time– Unlimited surge capacity– Flexibility – changing personnel, products,

approaches

Outsourcing Has Limits• Inherently Government Functions

– Right idea– Poor decision-making rubric

• Blended Workforce evolved more quickly than:– Best management practices– Ethics rules (e.g., organizational conflicts)

• Contractors Need to Be Managed

Gansler Commission: A Plea For Responsible Outsourcing?

Contract management is the essential post-award contracting function to ensure mission accomplishment, and it is an important control over fraud, waste, and abuse;... With not enough ACOs, PCOs could do this - but they are too busy and therefore it is not being done

Investing in theAcquisition Workforce

• Total Headcount–New Hires–Pending Losses

• Training and Experience–New Hires–Existing Workforce

Acquisition WorkforceWorst-Case Scenario???

• Denial remains prevalent • Retirement bubble ready to burst (but, a

recession may help)• Insufficient:

– leadership for massive hiring/training initiative;– numbers of qualified individuals interested in working for

the government (but, a recession may help);– time/resources for the existing workforce to gain

sufficient training/experience

Restoring the Acquisition Workforce?

For the foreseeable future, Congress cannot spend “too much” on:

• Salary• performance

incentives• recruitment bonuses• retention bonuses

• intern programs,• workforce training• sabbaticals (for

higher education)

Gansler Commission: A Plea For Responsible Outsourcing?

• Increase– Army military and civilian contracting personnel

[1,400+, approximately] 25 percent of the total– DOD post-award contract management personnel (to

fill DCMA billets for Army support) [nearly 600]

• Extrapolate across Government [8,000-10,000?]– Army ~ 15-25 percent of federal procurement $– Army historically better staffed than other agencies

Scope of the Challenge: Recruiting the Future Acquisition Workforce:• Back-of-the-napkin assumption:

– 8,000-10,000 professional needed

• An Analogy: US Department of Justice< 8,200 Attorneys, including:

–General Legal Activities (all)–U.S. Attorneys (all 50 States)–Antitrust Division–Trustees

Current Acquisition Workforce

Wrong Skill Set?1984 (CICA-FAR Era)• Supply• Formal

Advertised/Sealed Bid• Firm Fixed Price• Government-specific

specification• Awarded by PCO• Managed by DCAS

(DCMC, DCMA)

Today• Services

– Employee augmentation– Personal Services

• ID/IQ, Inter-agency vehicle• Cost-Reimbursement, T&M• Limited Competition• Unclear responsibility for post-

award contract management

Current Acquisition WorkforceOpportunities, Attractions?

• Civil Service (for better or for worse)• Career ladder out of secretarial pool• Long-term, stable, safe career• Fixed retirement program• Inadequate incentive structure

– 1990’s – failed incentive initiative

Recruiting the FutureAcquisition Workforce

• Gen X, Gen Y….– “most praised generation”– Universities and Helicopter Parenting– Show me the money!

• Civil Service Bureaucracy– Impenetrable, Slow, not user friendly

• Job Mobility• 401(k), TSP (What, me worry?)

• What is, why work in “procurement”?

Compare to private sector….

…. Business Acquisition Contracts & Pricing Manager responsible to provide contracting expertise to develop and negotiate creative business solutions …[P]osition … requires leading and managing … Create a culture of continuous improvement by communicating/deploying enterprise best practices and employee engagement. … Coach, mentor, manage, motivate and provide developmental opportunities … Seek and expand on original ideas, enhance others' ideas, and contribute own ideas. Understand the business issues related to the operation…

Acquisition Reform Chorus?

“constant drumbeat claiming that federal agency [IG’s] are discouraging the acquisition workforce from performing their work in an optimum fashion.”

Nash, Dateline, 21 N&CR (May 2007)

Can NCMA Play a Leadership Role?

Good Luck!

• Questions?

• Comments?

• Suggestions?

• Ideas?