Plans to 'in-source' contractor jobs collide with fiscal reality.

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

As he unveiled a new wave of austerity measures at the Defense Department, Secretary Robert Gates made a striking acknowledgment: Replacing contractors with government employees does not really save money.

In theory, in-sourcing jobs was supposed to reduce costs. But in the "money-is-no-object" atmosphere that has pervaded the Pentagon during the past decade, the theory was proven wrong. Agencies have been hiring workers, but they weren't necessarily eliminating contractors.

So much for efficiency.

It was only a year ago that the Pentagon was promoting its in-sourcing initiative to eliminate 33,000 support contractors by 2015 and replace them with full-time government employees. Gates had been flabbergasted by the vast presence of contractors in the building, who grew from 26 percent of the total Defense Department work force cost in 2000 to 39 percent a year ago--not counting battlefield contractors working in Iraq and Afghanistan.

One year into the in-sourcing effort, however, Gates saw that it was not achieving the desired results. Not only are there still too many contractors, he said, but agencies are indiscriminately bulking up the payroll without carefully evaluating what jobs are really needed.

It is not surprising that in-sourcing has been a disappointment. Gates blamed it on the absence of a "culture of savings and restraint" in the department.

If people can't be trusted to make common-sense decisions, Gates concluded, then choices have to be made for them.

He mandated a 10 percent budget cut for service support contractors for each of the next three years. For good measure, he instituted a three-year hiring freeze for government workers. "We will no longer automatically replace departing contractors with full-time personnel," he said. "The department must start setting priorities, making real trade-offs, and separating appetites from real requirements."

Gates' actions reflect his frustration about bureaucratic inertia and lack of fiscal discipline. In the weeks before he announced the new measures, he had warned his staff in private meetings at the Pentagon that changing the culture of the building after a decade of easy money was going to be tougher than anyone realized. Gates feared that the efficiencies drill was going to degenerate into the usual "salami-slicing" exercise that Pentagon bureaucracies favor because it avoids tough choices and ensures survival. They cut a little from each program without setting priorities.

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