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OMB seeks more contracting oversight, Insourcing - Contractors should watch this issue!

The White House's 2011 budget proposal will "rebalance" the relationship between the government and its contractors through more oversight and insourcing, the Obama administration's top procurement policy official said last week.

"We think the prior administration had policies that led to pressure to outsource," said Daniel Gordon, procurement policy administrator at the Office of Management and Budget, in an interview.

"We don't want there to be undue pressure one way or the other. … We want decisions to be based on the public interest."

The public interest, as far as OMB is concerned, is to increase the size of the workforce managing contracts to provide better oversight; to decrease contract costs to reduce the deficit; and to ensure that the government is not abdicating its decision-making role when it chooses what to buy and who to buy it from, Gordon said.

"Contractors are incredibly helpful to the government, but there is widespread concern that we're overly reliant on contractors," Gordon said.

There are two dimensions to the concern, he said. One is that the government has outsourced work that gives contractors too much influence over government decisions. The other is that federal employees do not adequately oversee outsourced work, Gordon said.

To address this, the budget proposes spending $158 million at civilian agencies to hire more acquisition personnel — the goal is to grow acquisition staffs by at least 5 percent, he said. Of that money, $25 million would go to a fund to help agencies recruit and train, Gordon said. Agencies also can use their slice of the remaining $133 million for those activities, he said.

The hiring funds are encouraging, but just a first step, said Stan Soloway, president of the Professional Services Council, which represents government contractors, including those that support the acquisition workforce.

"It's not a one-year budget drill," Soloway said. "This is a long-time process." Soloway estimates it could take five to 15 years to build the acquisition workforce to the level required to better manage the government's $500 billion procurement portfolio.

Some of the new acquisition hires may replace contractors, Gordon said.

Non-Defense agencies have told OMB that a third of the positions they will study for possible insourcing are acquisition-support functions, such as cost estimating, he said.

That work might not be considered "inherently governmental," meaning it would have to be done by federal employees, but it is vital to the work of federal contracting officers and often can influence procurement decisions, Gordon said. If that's the case, agencies should reconsider the choice to have contractors perform that work, he added.

The 2011 budget proposal for the Defense Department continues efforts to reduce the department's reliance on contractors. Since April, the Pentagon has been taking steps to do that, such as by hiring more acquisition staff and insourcing work.

The budget would add nearly 20,000 new civilian and military billets to Defense Department payrolls next year to perform work now done by contractors. Nearly 5,000 of those positions will perform contract support services, according to the budget. Those 5,000 positions will be part of an overall 10,025-person increase in the department's acquisition workforce next year, according to the budget.

Non-Defense agencies also are reviewing a lot of information technology support work done by contractors for possible insourcing, Gordon said. A third of all work being considered for insourcing falls in this category. Many agencies fear they have lost the ability to manage their own networks, he said.

Homeland Security is reviewing its reliance on contractors for IT support for just this reason, said DHS spokesman Larry Orluskie. Specifically, the department is reviewing its capabilities in the Office of the Chief Information Officer for designing IT systems, setting IT performance standards, creating departmentwide policies and processes, and providing automated solutions, Orluskie said. Agencies are expected to submit results of their insourcing studies to OMB in April.

"It is expected that the review will help to define requirements and eliminate shortages of federal staff," Orluskie said.

"The OCIO pilot will help to improve transparency and accountability and improve federal oversight," he said.

DHS expects that improving its in-house capabilities and lessening reliance on contractors could save $90 million through better management and oversight of investments, Orluskie said.

Not all insourcing activities will save agencies money, OMB's Gordon cautioned.

He said all agencies should at least consider acquisition-support and IT-support work for insourcing.

Industry groups say they support rebalancing the workforce to ensure the government is in control of its operations, but are concerned that agencies are viewing OMB's efforts as a quota.

"We realize we're going to reach an equilibrium between contractors and the government workforce, but we need to take a reasoned, strategic pathway there and we don't always see that happening right now," said Trey Hodgkins, vice president for national security and procurement policy for TechAmerica, a trade association for the IT industry.

Some TechAmerica members, who Hodgkins declined to identify, have reported that customer agencies are not following OMB's insourcing guidance, which calls for agencies to determine what outsourced functions are inherently governmental, whether the skills are otherwise needed in house, and whether it makes business sense to insource before converting contractor work to federal work, he said. Instead, when contracts end, some agencies are offering contractor employees federal jobs to meet a perceived insourcing quota, he said.

Without careful study, government may be wasting money bringing skills in house that don't need to be insourced, Hodgkins said.

Soloway agreed. Government should insource functions that are inherently governmental or would cause them to lose control of the cost, schedule and performance of a project if they were outsourced, he said.

"Beyond that you have a sourcing decision" in which agency managers should use competition to decide how best to get the skills they need, Soloway said.


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