Pentagon insourcing fueling contractor anxiety.

• Author: Erwin, Sandra I.
• Position: Industry

In the nineties, government workers used to fret about their jobs being outsourced. Now, it's industry's turn.

The Obama administration's push to shift work that had been performed by contractors to government employees is ratcheting up tensions inside the Beltway and putting the private sector on the defensive.

With billions of federal dollars and thousands of jobs at stake, a campaign to create smart government is devolving into open warfare. Pentagon contractors stand to lose the most because the Defense Department is the government's biggest buyer of contracted-out services--estimated at about $200 billion a year.

In 2010, the Pentagon added 17,000 employees to its payroll as a result of insourcing efforts, says Thomas Hessel, insourcing program lead at the office of the undersecretary of defense for personnel and readiness.

Within a work force of 750,000, that is a very small percentage, he points out in a recent interview.

Industry critics of insourcing are making it sound as if the Pentagon is taking away all the work from contractors, Hessel says. That is far from the truth, he contends. "It is not an all-out war on contractors."

This is simply about rebalancing a federal work force that, after nearly two decades of steady outsourcing, is lacking critical skills, Hessel says. Both Congress and the administration concluded that the pendulum had swung too far. What is being done now is a "course correction, not a sea change," says Hessel.

Of the 17,000 new Pentagon hires, half were for functions that were considered too sensitive, or "inherently governmental," to be contracted out. The other half was the result of cost analyses that showed that shifting the work in house saved the government money, Hessel says.

Whether insourcing will continue at the current pace is hard to forecast because there are no specific "quotas" that have to be met government-wide. This unpredictability --- not knowing how far agencies will go with insourcing--is precisely what is causing angst in industry, several executives say.

Defense agencies have ample latitude to determine that a particular function is inherently governmental, and if they ascertain that specific duties should be performed by civil servants and not by contractors, they have the authority to bring the work in house.

For industry, the process is "very disconcerting," says Robert Burton, a federal procurement attorney at Venable LLP who represents contractors. The leeway afforded to agencies to define a critical function is leaving the door open for abuse, he says. "You can argue that anything is critical."

Another industry beef has to do with transparency. When the government decides to insource work for cost-saving reasons, the losing contractors are not provided the cost-analysis data that led to the insourcing decision, Burton says. The only recourse is a...