Decisions in Washington have consequences that are often different than what those who made them thought they would be. An example of this is the Obama Administration’s policy of insourcing. This is transferring work that had been done by the private sector into the public sector. One reason given for insourcing was to ensure work that was inherently governmental in character, meaning that it was a core function or responsibility of the executive branch, would be performed only by government employees. But this involved relatively few positions. The primary reason for insourcing was that the administration claimed that it could do the work better or cheaper.
The Department of Defense, which spends more on outside contractors than any other cabinet department, has been by far the most aggressive about insourcing. Former Secretary of Defense Robert Gates initiated the effort, declaring that the Pentagon would hire thousands of new employees to do work formerly done by private sector workers and save money in the process. The defense agencies and military services jumped on the bandwagon, attempting to insource everything from management of the massive ICBM modernization and C-17 sustainment contracts to small activities from meal services to training. Over the past three years, DoD attempted to insource tens of thousands of jobs and billions of dollars of work.
As the process of insourcing built up steam, the Pentagon leadership discovered that it was neither easy nor cheap. In fact, it cost the Pentagon more money, reduced availability rates for major weapons systems and increased risks to the warfighter. A little more than a year into the effort, Secretary Gates acknowledged publicly that insourcing was not reducing DoD’s costs. The services had to reverse their attempts to insource a number of major sustainment contracts when they realized that they could not perform the required tasks and that it would cost them more money.
One of the major reasons insourcing has proven a failure is because it costs more to have government employees and facilities do the work. This should come as no surprise to anyone since, as the Congressional Budget Office recently reported, government workers are between 15 and 35 percent more expensive than their private sector counterparts. In addition, the public sector lacks the skill sets and the appropriate benchmarks – the profit motive – to discipline their behavior and control costs. The government is lousy at keeping track of its own costs. The Pentagon would have realized the futility of insourcing if it had done proper business case analyses (BCAs) before making their decisions. But they didn’t. Many BCAs were based on incomplete or faulty data. In fact, the government does not know what its own costs are. This is not only my conclusion but that of other think tanks and even the Government Accountability Office.
But in some cases they were not even credible suggesting the drive behind insourcing was not efficiency but ideological. Take one example. The U.S. Army decided to insource its airfield weather prediction work claiming both that this was an inherently governmental function but also that their personnel could do it more cheaply. Never mind that the Navy continued to outsource the same work, undermining the claim that it was inherently governmental. The Army also asserted that this work would cost $27 million if done by a private company but only $24 million if brought in house. The only trouble with this claim was that the private company doing this work for the Army had only been charging $18 million. By insourcing its weather service, the Army did not save $3 million, it spent an additional $6 million.
Insourcing not only reduces private sector employment and defense costs, it is particularly hard on veterans and at a time when unemployment among this cadre is higher than the national average. The reason for this is that the private defense industrial base is home to a disproportionate number of veterans. Veterans have the experience and require much less training. Many small businesses in this sector were started by veterans who then turned around and hired their brethren. These small companies do not have the clout of the major defense firms and therefore cannot fight back when DoD makes incorrect or arbitrary insourcing decisions. They have to reduce staff, letting some of their veterans go and, in some instances, even shut their doors.
It has become clear that the Obama Administration prefers the public over the private sector. But when it comes to insourcing, the White House ought to give the Pentagon, in general, and veterans, in particular, a break and call a halt to what is without question a failed and even corrupt policy.
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