Defense cuts raise questions about strategy

Some industry associations and government contracting experts are expressing skepticism about Defense Secretary Robert Gates’ plan to reduce Defense Department spending by $100 billion over five years by eliminating thousands of DOD positions and thousands more contractor jobs. Others see some benefits to the plan.

“We welcome Secretary Gates’ acknowledgement that the Defense Department’s savings assumptions associated with insourcing have been vastly overstated and based on incomplete analyses at best,” said Professional Services Council President and CEO Stan Soloway, in a statement today.

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Gates’ announcement that he’s curtailing most of the department’s insourcing activities because they have not achieved the projected savings “validates PSC’s view that his well intentioned April 2009 initiative has devolved into a budget drill based on arbitrary quotas and significantly overstated savings assumptions,” Soloway said.

“But even as he acknowledges that insourcing is not achieving the projected savings, he announced new, arbitrary reductions in funding for contract support and based his decision to close Joint Forces Command at least in part on the large number of contractor employees supporting it.”

“It’s unclear what relationship the number of contractors has to the mission for this or any other major command or for specific work it performs,” Soloway said.

He agreed that the department needs to cut costs and find major operating efficiencies, and added that PSC is “actively working with DOD to identify those efficiencies.”

But, Soloway added, “identifying and capitalizing on opportunities for efficiencies and savings is not a matter of who does the work. Indeed, smart contracting is often the best means to achieving that important goal.”

Soloway urged the department “to look across all of its activities, regardless of who is performing them, and determine what activities are no longer needed and what activities can be done more efficiently.”

“As we learned from the department’s failed actions regarding insourcing,” he added, “effectively addressing the department’s mission and budgetary challenges must be a holistic and strategic exercise.”

TechAmerica said the technology industry applauds Gates’ motives, but it cautioned that some aspects of the plan could harm the government’s ability to acquire and manage technology capabilities critical for ensuring national security.

“The underlying aim here is particularly prudent in a time of war, but the administration needs to be careful that these actions don’t unintentionally undermine our national security,” Phil Bond, TechAmerica president and CEO, said in a statement.

“On first blush, the technology industry is concerned that some of the planned measures could undermine the government’s own ability to acquire the 21^st century capabilities our war-fighters need,” said Bond, who previously served as under secretary of Commerce for Technology and, from 2002-2003, was concurrently chief of staff to Commerce Secretary Donald Evans in the Bush administration.

“We look forward to learning the details and to working with the Pentagon however we can to help ensure taxpayer dollars go where they are most needed,” he added.

Bond said that “some aspects of the plan could weaken the Chief Information Officer (CIO) in the Department of Defense, a position critical to effectively and efficiently managing technology implementations in any enterprise.”

Pointing out that Gates’ plan would eliminate the assistant secretary of Defense for networks and information, a position traditionally occupied by the DOD CIO, Bond said the plan would also eliminate another important technology office, the Command, Control, Communications, and Computer Systems Directorate of Joint Staff.

He urged the administration to be careful in categorically targeting programs where private-sector companies are performing “inherently governmental” work due to a lack of clear definition for that term.

“It’s important to note that developing and implementing technology solutions has never been a core competency of the federal government. Therefore, we would ask [Gates] to account for that fact and be clear about his working definition of inherently governmental,” Bond said.

Bobbie Kilberg, president of the Northern Virginia Technology Council, called Gates’ plan “a very serious blow to Virginia’s statewide economy. The economic impact of these decisions on Northern Virginia and Hampton Roads will be particularly devastating.”

She said the announcement and the underlying rationale offered in its support “are full of ambiguities which raise many more questions than they answer. The perceived cost savings offered thus far are unconvincing."

“Moreover, the announcement itself is premised on the false notion that the path to cost savings and enhanced efficiency and effectiveness lies in arbitrarily reducing the size of the government’s federal contracting workforce,” the NVTC statement said.

“Statements by defense officials that these cuts are a preemptive strike to forestall further deep cuts in military spending ring hollow and their impact on Virginia’s economy in a time of recession is inexcusable,” she said. 

The NVTC has been in communication with the Virginia congressional delegation and Gov. Bob McDonnell’s administration. “We will work closely with them in response to this situation over the coming days, weeks and months,” Kilberg said.

Robert Burton, former deputy administrator of the Office of Federal Procurement Policy in the Office of Budget and Management and now a government contracts partner at Venable LLP law firm, called the announced cuts in contractor support “drastic” and raise serious concerns.

He said the proposed savings from reducing contractor work “simply does not provide any support for the assumption that cutting contractor employees results in cost savings.”

“First, small businesses will suffer most of the losses in jobs and revenue,” he said in a statement, because when large prime contractors are forced to make cuts, they will first reduce their subcontractors, which are frequently small businesses.

Burton said it was unclear how the reduction in contractors would save the DOD any money. “In fact, he said, “to the extent the contractor work is absorbed by DOD personnel, it may end up costing the taxpayers a lot more.”

He said recent studies have shown that federal employees cost significantly more than contractor employees, especially when retirement and health benefits are included in the cost comparison.

But some industry analysts say although Gates’ plans might be a painful process, they are a step in the right direction toward achieving better efficiency, saving money and reducing red tape.

“There’s way too much bureaucracy – it just really seemed to balloon during the last administration. This will force decision-making into knowledgeable, more effective management,” said Robert Guerra, of Guerra, Kiviat, Flyzik & Associates, a consulting firm.

According to Guerra, many decisions currently – and unnecessarily – go up the chain of command when they could be better made at lower levels, cutting out some of the layers of bureaucracy.

Cutting down on the chain-of-command decision-making also will improve accountability, Guerra said.

There are so many levels of approval now, he said, it’s easy to pass the buck and avoid being accountable for decisions.

“There’s a sense of, ‘Well, the chain of command approved it, so I’m not accountable,” said Guerra, noting that such phenomena could change with implementation of new policies for better efficiency.

Warren Suss, of president of Suss Consulting, said much of Gates’ policy shift underscores some measures already being taken, including insourcing.

“Insourcing is already well underway,” he said, and he predicted that the practice will only increase under new rules.

“We’re going to see government agencies making their contract workers an offer they can’t refuse – ‘come work for us or get fired,’” he said.

Suss said he believes better efficiency will also trigger a change in the types of contract awards.

“I think we’ll continue to shift away from time-and-materials contracts, where it’s a contracting body in place of a government body, and more toward fixed-price contracts that allows the contractor community to establish their own measures to meet government standards,” Suss said.

Ray Bjorklund, chief knowledge officer and senior vice president at Fed Sources, said the new regulations don’t uniformly spell doom.

“There will be more cuts to contracted services, but there also may be increases in weapons systems because of Gates’ focus on funding the [Afghan] conflict,” he said.

“This is more about reallocating support spending that’s not really helping the warfighter,” Bjorklund said, rather than reducing the overall budget.