US in-sourcing policy under scrutiny

19 April 2010

19 April 2010 | Allie Anderson

A US policy aimed at restricting government outsourcing could end up costing rather than saving money, an expert has said.

The Office of Federal Procurement Policy (OFPP) last month published a draft policy letter to clarify when outsourcing of government services is appropriate and what functions should be defined as “inherently governmental”.

The draft, which is open for public comment until 1 June, suggests that procurement would meet this definition “when it is intimately related to the public interest” and could then only be carried out by federal employees. It is part of a push towards retaining in-house government capabilities and is aimed at helping achieve President Barrack Obama’s goal of cutting public spending on contracts by 7 per cent by the 2011 financial year.

However, Raj Sharma, president of US non-governmental body the Federal Acquisition Innovation & Reform Institute, said the policy was well intended but it would be difficult to implement and could narrow savings opportunities by restricting outsourcing unnecessarily.

He told SM that some work is already in-sourced that does not constitute a core government function. Decisions to retain these duties internally are being made “without full facts or robust cost analysis”. “We agree with the overall guidance by the Obama administration, but the intent of what the policy asks for and how it is implemented are two different things,” he said.

Under the policy, core government functions, for example the management of security contracts in war zones, must be performed entirely by federal agencies regardless of cost. Where functions are classed as “critical but not inherently governmental”, some of that function may be outsourced but the federal agency must have sufficient internal capability to oversee the work and pass final decisions.

For example, a federal agency may call on an external supplier to carry out a technical evaluation of a contract proposal, but a procurement contract can only be awarded by the agency itself. Similarly, government officials must be responsible for determining what supplies and services the government needs.

Sharma said: “The devil is in the detail. Many positions have been in-sourced and it’s not so much a strategic thing but more about cost. Even the cost-based decisions are not strong in that government is not using full analytical material or doing cost analysis. It could potentially cost the government in two ways. It could increase rather than reduce costs and in some cases lose core capabilities it needs rather than improve them.”

The OFPP hopes to have final guidelines in place later this year after getting feedback from suppliers, government agencies and employees.

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