U.S government steps up outsourcing effort

The U.S. federal government is accelerating its already-aggressive plans to expand its use of outsourcing providers and allow private companies to compete for work that is currently being done by federal employees.

The Bush administration last month unveiled a much anticipated plan to open up some 425,000 federal jobs to competition from private companies. The idea is to let both federal workers and outsourcers make proposals for specific projects – including many IT projects – and then give the work to the “bidders” that offer the best value. Government officials acknowledged that some federal employees might lose their jobs if they cannot win the competition.

Federal government officials stated that some 850,000 federal jobs – out of a total of 1.8 million civilian federal workers – are “commercial” in nature and could be performed by private companies under outsourcing contracts. The Bush administration eventually wants to open up half of those jobs – 425,000 – to competition from private contractors. The near-term goal is to subject 15% of the 850,000 jobs to competition by the end of the current fiscal year.

Computer-related positions were on the short list of jobs that the administration views as “commercial,” and it is likely that IT projects and positions will be among the first to be opened to outsourcing.

Not surprisingly, federal workers were unhappy about the aggressive nature of the competition plan, and some federal employee labor unions accused the Bush administration of trying to outsource too much government work. 

But Mitchell Daniels Jr., director of the Office of Management and Budget, said the administration is only interested in cutting costs and improving efficiency, and is “indifferent” to whether the work is done in-house or outsourced. “It [the competition] need not result in any changes in federal employment” if the federal employees win, Daniels said.

As part of the accelerated initiative, the federal government also is changing the rules for deciding whether a particular government task should be done internally or by a private contractor. Under the old system, Daniels said, the competition sometimes stretched for as long as three or four years, and the process was so complex that some outsourcers declined to participate. Under the revised system, the competition must be completed and a decision made within six months. A “streamlined” competition for tasks involving 65 or fewer federal employees requires a decision within 135 days.

The federal government eliminated a process known as “direct conversion” that allowed the outsourcing of tasks involving 10 or fewer jobs without competition by internal staff. But the new rules also eliminated a 10% cost advantage that historically has been given to in-house staff, effectively forcing outsourcers to propose doing the job for 10% less in order to be considered.

Finally, the revised process includes a new “best value” criterion that only requires cost to be 50% of the deciding factor in contract awards. This means that federal agency officials will have a wide latitude to make an outsourcing decision based on factors other than lowest bid.

The Bush administration’s outsourcing push provides both good and bad examples of how an enterprise can approach an outsourcing project. On the positive side, there is real value in taking a step back and forcing internal staff to compete with outsourcers for “business.” This sort of competition can help the organization to view projects in new ways, weighing real issues of cost and service level. The government’s willingness to consider “winners” based on criteria more subjective than low bid also indicates positive flexibility.

However, it is also important to consider the morale and confidence of the internal staff that may be affected by an outsourcing engagement. Even if federal government employees “win” the competition for the next project, how will they be affected by the process? The Bush administration has not given enough attention to this issue – and its future internal service levels may suffer as a result.