This document may be quoted, reproduced and/or distributed without permission provided that credit is given to Frank A. McDonough, author of "Spring training, for the major leagues of government."
Problems with Outsourcing
After receiving shoddy products from contractors during the Civil War, President Lincoln established the National Academy of Sciences to provide truthful information about the quality of gunpowder and other materials delivered to the government.
In 1941, echoing a similar theme, Senator Harry Truman (D-Missouri) said, “I have never yet found a contractor who, if not watched, would not leave the government holding the bag.” [i]
In recent times, Rep. Henry A. Waxman (D-California), chair of the House Committee on Oversight and Government Reform, discussing contracts in Iraq and in the Department of Homeland Security said, “Billions of dollars are being squandered, and the taxpayer is being taken to the cleaners.” [ii]
David M. Walker, former head of the Government Accountability office, an arm of Congress, said contractors often fail to deliver the promised efficiency and savings. He said you cannot expect private companies to look out for taxpayers’ interests. “There’s something civil servants have that the private sector doesn’t. That is the duty of loyalty to the greater good—the duty of loyalty to the collective best interest of all rather than the interests of a few. Companies have duties of loyalty to their shareholders, not to the country.”
Congress, which generally favors outsourcing, may attack it if it will reduce jobs already in place in its districts. A report prepared by the Congressional Research Service in 2005 identified eight outsourcing bills, later signed into law. The bills placed limits on, or delayed outsourcing plans. For example, Congress required the Pentagon to submit annual reports on anticipated savings before any additional jobs could be outsourced. These requirements had the desired effect—delayed outsourcing. However, the overall trend is to outsource more and more government jobs.
When Roger Johnson led GSA, he recognized that the government works with spinoff organizations created by the major corporations. The government, he said, does not have access to the talent in America’s major corporations. Aside from companies such as weapons manufacturers that sell mainly to the federal government, other Fortune 100 companies create independent spin-off organizations keeping separate books for government review.
Major suppliers to the federal government “. . . are not really companies,” said Peter W. Singer. “They are quasi-government agencies.” Yet they are free to influence government decisions. Singer pointed out that Lockheed Martin spent more than $53 million lobbying and $6 million on political donations between 2000 and 2006. In a recent year, it led all Defense companies with $25 million spent for lobbying defense legislation.In 2015, Lockheed Martin was in the top 10 of U.S. companies lobbying Congress.
Lockheed Martin, General Dynamics, and other firms are able to keep unneeded arms program alive long after the Pentagon has little or no need for the products forced on the military by the Congress.
At the same time, major hardware producers receive more money in contract awards than the Congress appropriates annually to the Departments of Justice or Energy.[iii]
With millions of contractors performing thousands of jobs, there are going to be problems especially in the very high dollar programs and those requiring R&D in our science agencies and many DOD programs.
In 2008, government investigators charged Blackwater Worldwide Security guards working for the State Department for a shooting frenzy in Baghdad that left 17 Iraqi civilians dead.
In 2009, Wackenhut Service Company, owner of AmorGroup International, declined comment on a report by the Project on Government Oversight about the lewd behavior of its employees in Iraq. As reported on TV in the United States, the guards hired to protect government officials held parties where they urinated on themselves, drank vodka which had been poured over their bare buttocks, while the men fondled and kissed each other, and paraded around virtually nude.
Wackenhut’s firm recruited the guards from Nepal where wages are low. Most could not speak English although their job was to protect the United States embassy and the 1,000 diplomats, staffers, and Afghan nationals working in Iraq.[iv]
During the second Iraqi war, there were at least 50,000 private security contractors in Iraq working alongside American troops and officials. In some cases, companies recruited these workers from the ranks of mercenaries in Chile, Nepal, South Africa, and other countries.
One of many stories coming out of Afghanistan and Iraq was about Shane Schmidt, a former Marine who served two tours in Afghanistan. Later, Triple Canopy, one of the larger contractors in Iraq hired him after he left the Marine Corps. He accused his civilian boss of randomly shooting at and perhaps killing civilians in Baghdad. He said that working in Iraq was a lot like going to war with the Marines, except there were fewer restrictions. In an interview with Steve Fainaru, author of “Big Boy Rules,” about the lawlessness of contractors working in Iraq, he said his company briefed him to take a shot if he ever felt threatened. [v]
Contractors exploit a murky legal status. Under the Geneva Conventions, contractors are noncombatants. However, many contract personnel in Iraq served previously in America’s military. As civilians, they trained Iraqi security forces, and in that role, they sometimes killed Iraqi civilians.
The government investigated employees from at least two military contractors—CACI of Arlington, Va., and Titan of San Diego—for their role in the alleged torture and sexual abuse at Abu Ghraib prison.
The CACI contract in particular drew attention because the Pentagon did not award it. Rather, the civilian agency, the Department of the Interior, negotiated the contract to provide computer network solutions, not for the prison guards and interrogators that the Defense Department hired.
Noteworthy is that companies are not subject to the same accountability rules as government agencies. For example, companies are not subject to the Freedom of Information Act.
Major companies supplying products and services to government often have more power than government contracting officers do. Sitting across the negotiating table from a government-contracting officer are companies so big almost nothing can get their attention? With several billion dollars in annual sales and a declining number of competitors, a major company can respond quickly and powerfully if its interests are threatened. In 24 hours, to protect its interests, it can muster several in-house lawyers for litigation, hire lobbyists for publicity or to confuse the issue, and employ perhaps ten more specialists on contract at $100,000 a week to start work immediately.[vi]
In addition, major companies have access to senior political officials in agencies that government contracting officers seldom meet, even once. Because of generous campaign contributions, and their ability to provide perks, such as (until recently), the practice of providing seats on corporate jets, major companies have little trouble opening doors to lawmakers and their key staff members.
As a result, agency contracting officers often find themselves outgunned and on the defensive. Agency policy prohibits them contacting the media to explain their decisions and they lack similar access to Congress except through agency political appointees who may or may not be willing or able to provide support. To compete with the resources of a major company, one part-time agency lawyer, a generalist, might be the only support available to the government-contracting officer. Major suppliers often have more firepower resembling an armed brigade facing a government contracting officer standing alone.
Does Outsourcing Save Dollars?
The short answer is that no one really knows because while the OMB, the president’s budget office identifies at risk systems in contracts already awarded, it also promotes outsourcing and makes predictions about savings, but it does not follow up after outsourcing takes place to validate savings or identify cost overruns.
Here are some perspectives on the question of outsourcing savings.
Rep. Henry A. Waxman (D-Calif), pointed out that Middle East and African contractors signed by the United States military charged $25 million to repaint 20 police stations. The governor of Basra in Iraq claimed local firms could have done the work for $5 million. Of course, the larger question is why the military is spending taxpayer dollars to paint Iraqi police stations.
Considering the prices paid by the government to contractors for computer personnel, it is questionable whether OMB’s anticipated cost savings of $12,500 is realistic for each of the 400,000 jobs it claims could be performed by contractors. One firm doing routine performance management studies for a government agency was paid $270 per labor hour. This is an annual fee of $486,000 for one person for one year (1,800 hours, or 36 hours a week for 50 weeks) of routine work. The government could hire three employees and pay their salaries and benefits for the amount paid to this firm for the equivalent of one contractor.
In another example, the State Department awarded a defense-oriented firm a $545.7 million follow-on contract (extending the original contract) to continue police training in Iraq. In the 22-month contract, the company was responsible for recruiting about 800 civilian police advisors to help train the Iraqi Police Service, and law enforcement officials in the Minister of the Interior, and in the Department of Border Enforcement. The cost for developing each of the 800 civilian police advisors, presumably including the actual training provided, computes out to $682,000 each—in a country in which the 10-year war reduced employment and jobs to almost zero.
In a decade, according to the Commission on Wartime Contracting in Iraq and Afghanistan, the Defense Department and the State Department have wasted more than $30 billion, and possibly another $30 billion in contracts and grants in Iraq and Afghanistan, the latter a country where 42 percent of the people are unemployed and 36 percent have a daily income of less than one U.S. dollar.[vii] At the same time according a to a senior CIA official, we triggered massive corruption in Afghanistan, a primitive country, with a mostly illiterate population, a tiny farming economy, a tribal leadership, and few national institutions. [viii]
Off-shoring jobs to workers in other countries, another form of outsourcing, is attractive to United States companies because Administration policies restrict them from hiring immigrants with special engineering and scientific skills, skills reportedly in short supply in the United States. Another roadblock is the years-long delay required before the government grants the security clearances needed to work on many government programs. These policies lead to more (rumored) off-shoring of government jobs to countries such as China, India, and Malaysia as the skilled labor pool in the U.S. allegedly shrinks.
As leading U.S. companies such as CISCO, GE, IBM, and Microsoft continue to establish major research laboratories and to transfer computer and software research jobs overseas, it is likely that foreigners will work on U.S. government programs. They have the scarce and lower cost talent that United States companies covet.
In addition, be alert to the changing landscape in outsourcing. Consider, for example, Watson, IBM’s artificial intelligence question-answering system that has the potential to do the jobs of hundreds of thousands of analysts in the government, and many more elsewhere.[ix]
Watson runs on about 2,500 parallel processor cores, each able to perform up to 33 billion operations a second. It competed in February 2011 and trounced two expert humans on television’s Jeopardy in the follow-on to the 1997 match when IBM’s machine, Big Blue, defeated the world’s reigning chess champion.
Futurists Arnold Brown and Martin Ford forecast a different version of government outsourcing, predicting that robots, networks, and other forms of non-human electronic decision-makers will routinely substitute for humans in the future. [x][xi]
Advice to Fernando
While there can be problems with outsourced contractors, there are many instances in which contractors do an outstanding job, especially in lower dollar, less complex programs. And, the government could not do its job without thousands of contractors.” Therefore, outsourcing is here to stay. As Tiger Woods said pragmatically many times in his career, “It is what it is.” How then can you, as a high-level program manager, navigate the outsourcing process to ensure that the outcome will be successful? Here are five recommendations.
Plan for and expect the worst. In the history of federal, state, and local government, many attempts to privatize major government functions failed in part or completely for three reasons.
Because of the complexity of the job,
Because the job required emerging technology still in need of further development, and
Because of poor estimates about the risk and potential savings. [xii]
Decide how much you can outsource while retaining enough expertise to manage the contractors. You should retain certain functions in-house because your contractor in his drive for profits, stockholder value, and executive bonuses may trump the objectives of your program and the terms of the contract.
Retain your contracting flexibility and the right to introduce new technologies and replace large numbers of contractor personnel if new technology would allow it.
And, maintain the right to fine-tune goals and milestones as you and your contractors learn while work under the contract proceeds. Encourage your contracting officer to incorporate these flexibilities into the contract.
Study the practices in leading countries, especially Australia, Great Britain, and Singapore. Ideology and politics, not business reasons, dictate many outsourcing decisions in the federal government. In other countries, Singapore for example, common sense and good management drive outsourcing decisions according to Wu Choy Peng, the former CIO.
Before we sign the contract, we identify every possibility in which things could go wrong, she said. There must be no surprises after signing.
We monitor contractors very carefully each month. Any slippage can result in a penalty to the contractor. You must not let things drift because problems will only get worse, she advises.
If you do not build in a measurement process before contract award, “savings” will be difficult to quantify.
Finally, recognize that you will have to outsource your billion-dollar program. Be wary and anticipate problems. Recognize that the contractor’s lawyers and procurement experts could outgun the often-overworked assigned to you so study the proposed contract terms and conditions to identify items that could be detrimental after award.
Attention to these recommendations will help you to excel in outsourcing. In addition, if your contractor is missing milestones do not delay action hoping and trusting that the contractor will be able to reverse a deteriorating situation. Delay in big systems complexity rarely solves performance problems. Singapore, often the leader in electronic government, sets the standard by facing up to contractor performance problems quickly before conditions get worse.
Fernando, do the same.
Manage your way to success in your government assignments