The Quiet Revolution: Downsizing, Outsourcing, and Best Value

• Author: Major Mary E. Harney
• Pages: 02

48 MILITARY LAW REVIEW [Vol. 158

THE QUIET REVOLUTION:

DOWNSIZING, OUTSOURCING, AND BEST VALUE

MAJOR MARY E. HARNEY1

In the process of governing, the government should not compete with its citizens. The competitive enterprise system, characterized by individual freedom and initiative, is the primary source of national economic growth. In recognition of this principle, it has been and continues to be the general policy of the government to rely on commercial sources to supply the products and services the government needs.2

We are today engaged in a quiet revolution that extends across the range of our activities.3

1. Introduction

   A quiet revolution is sweeping across the Department of Defense (DOD). In this revolution, DOD leaders are battling for more money. The weapon: Office of Management and Budget Circular (OMB Cir.) A-76.

   This is not a secret weapon. Members of the DOD and the public sector are learning how OMB Cir. A-76 works: the federal government competes with contractors to see who may supply products and services more economically. Consider the following scenario: Officials at a military base solicit offers and use A-76 to cut the costs of its base services. The government submits an offer. A small business also submits an offer, but loses the award-to the government. In light of the policy from OMB Cir. A-76, how can this happen? How can a private offeror even compete against the government to provide service, much less lose to the government?

   The same policy provides the answers. Office of Management and Budget Circular A-76 guides federal agencies that are deciding whether to outsource4 a commercial activity5 or perform it in-house.6 This policy promotes three goals: achieve economy, keep government functions "in-house," and rely on the commercial sector for products and services, but only if more economical.7 That being said, how does OMB Cir. A-76 mesh with the DOD's warfighting role? Simple: money. Shrinking budgets and

   dollar signs have caught the attention of many persons, both in and out of the DOD. Some experts predict OMB Cir. A-76 can save the DOD billions of dollars, money that it can then use for readiness.8 Talk to commanders at most military bases and you will probably hear them discuss "outsourcing." Peruse a news service covering the DOD and you will probably find an article weighing the pros and cons of outsourcing.9 According to Se

   retary of Defense William Cohen, the military services have made a difficult but necessary choice: "[t]o preserve combat capability and readiness, the services have targeted the reductions by streamlining infrastructure and outsourcing non-military essential functions."10

   An old concept with a new look, OMB Cir. A-76 has emerged with new life as the DOD looks for ways to maintain combat readiness in this time of tight budgets and dwindling resources. First promulgated as policy in 1955, OMB Cir. A-76 permits public-private competitions to see which entity performs a commercial activity more economically. As it gained new life, OMB Cir. A-76 also received a new look. In March 1996, the OMB published a Revised Supplemental Handbook (Supplement) to OMB Cir. A-76.11 The Supplement changed how the DOD and other federal agencies can decide to contract a commercial activity. Among its many revisions,12 the Supplement introduced the concept of "best value"13 procurement to the OMB Cir. A-76 outsourcing process.14 This change created interesting issues. While OMB Cir. A-76 is a cost-savings program, "best value" allows the government to pay more money for a better product or service. This may initially seem to benefit the government.

   Despite "best value," however, OMB Cir. A-76 still requires the government to award the contract to the public or private entity offering the lowest price for the product or service.

   How to apply the "best value" concept in a cost-driven program is a tough question with no easy answers. This article analyzes that question, focusing on three areas of OMB Cir. A-76 and the quiet revolution: policy, process, and recourse. "Policy" constructs the overall framework for OMB Cir.

   efficient, and responsive government.19 The NPR proposed four ways to implement this "customer service contract": cut red tape, put customers first, empower employees, and produce better government for less money.20 Outsourcing fueled the drive towards these goals. The NPR emphasized that public agencies should compete "for their customers- between offices, with other agencies, and with the private sector. . . ."21

   Though it emphasized public-private competition, the NPR cited government bias against outsourcing. Specifically, the NPR criticized the DOD for not fully embracing this freemarket-oriented concept. Noting that the DOD faced shrinking budgets, the NPR concluded that the DOD could no longer afford to conduct "business as usual." Rather, the NPR challenged the DOD to erase its cultural bias against outsourcing.22 The NPR urged senior Pentagon leaders to face the outsourcing challenge squarely.23 The DOD accepted this challenge, responding with the QDR.

   B. The Policy: The Quadrennial Defense Review-the DOD Responds

   In the National Defense Authorization Act of 1997,24 Congress directed the Secretary of Defense to examine defense programs and polices "with a view towards determining and expressing the defense strategy of the United States" through the year 2005.25 Congress presented the Secretary of Defense with a comprehensive list of areas to review, ranging from force structure and defense strategy to budget and infrastructure.26

   When Secretary of Defense Cohen presented the QDR to Congress on

   15 May 1997, he announced that for the DOD to maintain the "tooth," or combat readiness of our national defense, it must cut the "tail," or the su

   port functions. Harkening to the NPR and its mission to reinvent government, Secretary Cohen stated that the DOD must identify and then choose between the military's core functions and the private-sector functions. He further noted a "leaner, more efficient, and more cost effective" DOD could serve the "warfighter faster, better, and cheaper."27 By reducing infrastructure, the DOD would unleash money to invest in combat readiness.

   The QDR offered four ways for the DOD to invest in combat readiness. First, the QDR proposed further reducing civilian and military support personnel.28 Second, the QDR recommended additional rounds of base closures.29 Third, the QDR proposed adopting private sector business practices to improve support activities.30 Finally, the QDR advocated outsourcing more "defense agency"31 support functions to achieve both a "tighter focus" on essential tasks while lowering costs.32

   The QDR study, though impressive, has been challenged.33 After issuing the QDR, the DOD further scrubbed its infrastructure costs to uncover even more ways to reduce, streamline, and outsource. To accomplish this, the Secretary of Defense commissioned a Task Force on Defense Reform,34 which produced the DRI.

   C. The Policy: The Defense Reform Initiative-Taking the QDR One Step Further

   When he unveiled the DRI report on 10 November 1997,35 Secretary of Defense Cohen portrayed it as a sweeping program aimed at reforming the "business" of the DOD. Secretary Cohen stated, "American business has blazed a trail and we intend to emulate their success. We have no alternative if we are to have the forces we need as we enter the 21st century."36

   To reshape the DOD into an agile warfighting entity, the DRI expanded upon the QDR37 to propose more streamlining and outsourcing.38 The DRI

   recommended melding best business practices from the private sector into defense support activities. Along with the additional base closures, the DRI suggested that the DOD consolidate redundant organizations and out-source more in-house functions.

   The DRI set ambitious outsourcing goals for the DOD. By 1999, the DOD plans to review its entire military and civilian force to identify those commercial activities falling within the A-76 "net."39 According to the DRI, the DOD studied over 34,000 positions in fiscal year (FY) 1997 alone, mostly in the areas of base services, general maintenance and repair, and installation support.40 By FY 2002, the DOD plans to study 150,000 more positions.41 By competing these positions, the DRI predicts that the DOD could save nearly six billion dollars by FY 2002.42

   D. The Policy: Is Everyone on the Outsourcing Bandwagon?

   Despite such predictions, not everyone has climbed aboard the outsourcing bandwagon. Historically, Congress has not fully embraced OMB Cir.

   the late 1980s, Congress empowered installation commanders to decide whether or not to study commercial activities for outsourcing.43 Not surprisingly, when offered the option to outsource or maintain the status quo, most commanders chose the latter course. Later, in the 1991 Defense Appropriations Act, Congress prohibited the DOD from funding lengthy OMB Cir. A-76 studies.44 Finally, Congress flatly prohibited the DOD from outsourcing for eighteen months, from October 1992 to April 1994.45

   As a result, Congress slowed the DOD outsourcing boom until 1995, when

   many of the restrictive laws lapsed and the DOD again attempted to employ OMB Cir. A-76.46

   The GAO has also jumped into the outsourcing fray. Now that the DOD has quickened its outsourcing pace, the GAO has questioned whether the DOD can meet its ambitious cost savings goals. In report after report, the GAO has pulled the DOD back down to earth, calling its projected savings "achievable" but often "overstated."47 Though the GAO has applauded the DOD's attempts to save money, it has challenged its data for projecting savings, its overly optimistic timelines to meet savings goals, and its myopic view of meeting mission requirements in the face of severe personnel cuts.48

   Despite the DOD's rosy outlook for savings from outsourcing, the GAO has praised it for at least using OMB Cir. A-76 as a...