Is insourcing a mandate? Does it rest on “fuzzy math”?

stan solowayIn the midst of the whole insourcing conversation, one point often gets overlooked. “The Obama administration doesn’t have a specific, explicit, or even implicit insourcing agenda,” says Stan Soloway, president and CEO of Professional Services Council. “The objective,” he adds, “is to ensure you’re doing inherently governmental functions within the government, as should be the case, and to ensure that other work being done under contract is properly and efficiently managed.” It’s now incumbent on agencies to consider what should be insourced. “‘Consider’ is the operative word,” says Soloway. Here Soloway offers several key points for industry and government alike to consider for insourcing to move forward in ways that best maximize cost efficiencies and performance, all-around.

1.) Beware fuzzy math. That’s particularly true in the case of the budget drill currently taking place within the Defense Department, says Soloway. “Assumptions are being made based upon fuzzy math that, for budgeting purposes, presumes you can save 30 percent for every position you insource,” he says. In reality, you may actually be hastening a cost increase. “The problem is that what you save on contracting costs for support services at ‘Air Force Base A’ may well only focus on immediate personnel costs and doesn’t speak to the total infrastructure and life cycle costs associated with performing the work in-house,” says Soloway.

“Many of those costs are out of other people’s budgets … you have very little visibility into the military construction, defense travel, and personnel systems costs, training and professional development, lifetime healthcare and other costs, for example, that support a federal employee,” he says.

2.) Poaching doesn’t just hurt industry. Aggressive recruiting of contractor employees, which is often accompanied by pay increases and generous bonuses, raises several questions: Are skills being appropriately matched to the jobs being filled? Are such tactics consistent with best business practices and business integrity? Soloway cites a recent example: a contractor, 18 months out of college, who was given a GS-14 to enter government. “What does that say to all of the people under the GS-14 level in that department who’ve been spending 10 or 15 years building their capabilities to get to that level?” asks Soloway.“Clearly,” he adds, “it’s going to have a morale impact internally.”

Such recruitment practices also run counter to the government’s “merit systems hiring process”; grievances have been filed by federal employees as a result. “That’s a real issue that the government has to be sensitive to,” he adds. Of course, the government complains that industry has been doing this to the government for years. “I am not sure it is as common as people think” Soloway says, “But I am increasingly convinced that it would be in everybody’s best interests to put in place commercial-like non solicitation agreements under which both government and industry would be prohibited from soliciting each other’s employees in the narrow circumstances involving a business relationship.”

3.) Engagement is key. “It maybe a trite term but engagement is more important now than ever,” says Soloway. To industry, he offers this advice: Stay close to your customer, deliver for them. “So that when they’re told by headquarters, ‘You must do X,’ you can offer a counter argument that delineates just how you bring value,” he says. Engaging your employees is also key. A lot of companies, particularly in this region, have employees who work onsite with customers. How you engage your employees in that kind of environment is a big challenge,” says Soloway. Companies, he adds, must stay vigilant in finding ways to build loyalty and identification among this employee base. Finally, engaging Congress is essential. “A lot of members of Congress don’t understand the implications of arbitrary insourcing,” he adds.

4.) Arbitrary insourcing hurts businesses. “There is the whole economic question,” says Soloway. “If you think about northern Virginia as one good example … much of this economy is built not just because of a lot of good government contracting but because of the tax base and the economic base that comes with building a sustainable strong private sector,” says Soloway. That issue extends beyond northern Virginia. Soloway cites a recent casualty of insourcing: a company down south. “It had about 100 employees; about 70 at one military base, 30 at another,” says Soloway. “Both of their contracts were arbitrarily insourced as part of the DoD’s budget drill … as a result they lost virtually their entire book of work,” he says. The last Soloway heard, the company had to close its doors. “It seems counterintuitive that one of our goals is to build economic capability and capacity and yet through this sort of arbitrary, illusory budget drill, we are actually putting  businesses out of business.” Finally, the whole insourcing discussion, and accompanying matter of poaching, does not allow normal competition for talent. “It’s really a fixed competition,” says Soloway, “because the government is determining what the rates are.” For industry, that can spell disaster. “Unless I am getting some relief from those rates, my employees are going to go, in some cases, where the best opportunities are.”

Is arbitrary insourcing underway? Does it rest on fuzzy math? Share your comments here.

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