This memo doesn't actually do, much, but it is a clear shot across the bow to a lot of current work. For many years the federal sector has been dealing with Curcular A-76. The intent of A-76 is to introduce competition for segments of work that were/are performed by federal employees. Momentum on this issue has been solidly behind the industry. Part of the reason for that is because there is a lot of political momentum for decreasing the size of the federal workforce.
My personal take on this issue is that, the work doesn't disappear. Some process, call it ABC, was getting done by federal workers, and now with A-76, a company can compete with the government to try to do it cheaper and better. The problem I have with this is that we never actually realized the cost reduction. In fact, I strongly believe that we actually received a cost increase because of this policy. Take this as an example. A federal employee processes my leave forms for when I need to use vacation time and sick time. Let's say hypothetically, that person gets paid $50,000 per year as a federal employee. We have an A-76 competition on for that work and the industry wins because they can find a person to do that work for $35,000 per year. That sounds good right? So they pay a person $35K, but don't forget, the company has to make money as well (that what businesses do). So there is a mark-up, let's say 10% (which is pretty low). So now that $35K work is now costing the government $38.5K. Still works out better. But then you have to add in the cost of developing, competing and awarding a contract for the work, that has to be worth about $5K. This puts us up to $43.5K, which is still on the plus side. But wait, you also have to add in the cost of monitoring performance and training, transition in and transition out costs. Those start to push the cost up to the original $50K, which just makes this exercise a wash. But don't forget, this is just the base year for what is likely to be a 3 to 5 year contract. Those types of contracts almost always have escalation clauses built into them. The smallest I've seen is 3%, but 5% is pretty typical. If we escalate the contractor cost by 3%, we get up to about $45K in year 5 and that doesn't include the cost of administering or monitoring the contract, or, god forbid, litigation that sometimes happens with a contract.
While A-76 seems like a cost cutting program, I believe it is a net cost when considered in the long-term just from a practicaly dollars and sense perspective. To be fair, I did not go through all of the add-ins that go into a federal employee, and they exist, but I want to make a point. When you consider this issue from a Knowledge Management perspective, there is no comparison. Something like keeping track of Time & Attendance is one thing, but we have been outsourcing functions like Contract Specialists.
Wonder why we are in such a tough situation in the field of acquisition? The answer to this is rooted partly in the other side of A-76. Set aside the actualy dollars and cents cost analysis and look deeper at the hidden costs. What is the government losing when function ABC is outsourced? They are losing the institutional knowledge of that work and the connections it has to all of the other areas in the business. In my example of someone performing the work of Time & Attendance, that is one thing. But if we look at other segments that are not necessarily "Inherently Governmental" then we can start to see the roots of the acquistion problem. Procurement Analysts and Contract Specialists are two functions that are not currently identified as being inherently governmental. That means that the government can and does award contracts to get people to fill these roles. As we do that, we (the federal government) loses the institutional knowledge associated with performing this work. The people who perform this work are the people who are going to be stepping up to be tomorrow's Contract Officers. But as we outsource these positions we lose the richness of their connections and must compete against the higher salaries of the commercial sector to bring them in to the CO roles.
This Managing a Multi-sector Workforce memo says to me, 'Look out, we're getting ready to change the definition of inherently governmental, and it is going to impact the acquisition side.'
In particular, overreliance on contractors can lead to the erosion of the in-house capacity that is essential to effective government performance. Such overreliance has been encouraged by one-sided management priorities that have publicly rewarded agencies for becoming experts in identifying functions to outsource and have ignored the costs stemming from loss of institutional knowledge and capability and from inadequate management of contracted activities. Too often agencies neglect the investments in human capital planning, recruitment, hiring, and training that are necessary for building strong internal capacity – and then are forced to rely excessively on contractors because internal capacity is lacking...It's coming I tell you.
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