In the debate over sourcing federal work, there is one point where all sides agree: the government does a poor job of estimating its own costs when comparing them to private-sector costs of performance.
Now, just in time to inform this debate, which is again surfacing as Congress considers the National Defense Authorization Act, the Center for Strategic and International Studies released an important report identifying enormous gaps in current cost-comparison methodologies. Moreover, the CSIS report proposes a new taxonomy for making these comparisons that is more comprehensive and source-neutral than any method available to the government today.
In releasing the May 17 report, CSIS’s David Berteau said that even as attention to rigorous cost analyses of weapons systems programs grows, the Defense Department is regressing in the quality and rigor of its personnel costs analyses. Further, as the CSIS report shows, contrary to some popular belief, the vast majority of the costs currently ignored in most cost comparisons are identifiable, available, and frequently assessed in other types of analyses. For example, if DoD simply included in its comparisons the lifetime costs of health and retirement benefits for federal employees, the department would have a more accurate assessment of the true costs of conversion from private to public sector performance. However, because the costs are not paid out of DoD’s coffers, they’re discounted, creating illusory conclusions.
As such, CSIS is advocating that current methodologies be updated to account for the gaps identified in the report. CSIS recommends that federal agencies incorporate a range of factors to ensure they are getting the most for their money when choosing whether to use the public or private sector for work that does not need to be performed by federal employees:
• Use a statement of work (SOW) as a common starting point for public-private competitions with uniform, clearly defined performance parameters upon which proposals will be evaluated.• Use the total, fully burdened costs to the entire federal government as the basis of the public sector‘s cost estimate rather than only costs accrued by the agency.• Account for the inherent risk of cost growth for both, the public and private sector.• Incorporate expected transition costs when converting work from public to private and vice versa.• Account for oversight and administration cost for both the public and private sector.• Mandate more frequent updates for calculating personnel cost elements, such as health care and retirement benefits, to ensure an accurate cost estimate for military and civilian employees.• Account for the full cost of government-owned capital.• Account for tax revenue generated by the private sector using the OMB Circular A-76 model.• Account for varying workload stability within a commercial activity.• Account for the cumulative effects of multiple insourcing and outsourcing decisions on indirect cost structures within the public and private sector.• Account for the hypothetical costs for insuring and indemnifying public-sector personnel following the OMB Circular A-76 model.
Finally, a disciplined and rigorous process for cost comparisons! For too many years, we have been embroiled in a continual debate over how to calculate the relative costs of performance and CSIS has shown us a source-neutral way forward.
CSIS’s study does an excellent job bridging the gaps in current cost-comparison methods to instill real fiscal discipline in the process without dwelling on the question of ‘who’ should perform the work. Instead, it appropriately focuses on the process for providing accurate, complete information for all parties and that’s something everyone should be able to support.
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