Competitions between government workers and contractors for Defense
Department jobs can bring more efficiency to the public sector,
but critics also have complained that the practice may unfairly
risk government workers’ jobs.
The difficulties associated with outsourcing, base closures and
public-private competitions could be alleviated under an initiative
called Transition Benefit Corporation (TBC)—a non-profit umbrella
organization that would facilitate the transition of workers and
buildings from the public to the private sector. The goal of TBC
is to find a “soft landing” for government workers and
to create a business environment for “new growth,” said
Roger Feldman, an attorney with Bingham Dana, in Washington, D.C.
Working with Feldman on this project is Stephen Sorett, an attorney
at ReedSmith, also in Washington. They described the TBC as a vehicle
to promote the transfer of under-used government assets, such as
real estate, equipment and intellectual property, as well as the
transition of government personnel to the private sector.
“The TBCs are merely facilitating entities to move assets/personnel
into private-sector situations where they will contribute to economic
development and personnel soft landing,” said Feldman. The
umbrella organization would include the federal workers whose jobs
are in jeopardy, a private firm that would be selected competitively,
as well as an “incubator” organization that would receive
local grants and pursue new ventures.
The employees in transition can be part of the non-profit, the for-profit
or new start-up companies. They negotiate an employment contract
with their new employer that will typically last about one year.
“After that, there are no guarantees,” said Sorett.
The premise of the TBC model, he noted, is to grow new businesses
and create a climate for economic development. The one-year guarantee
is based on the fact that, on average, the terminating federal agency
has outlays amounting to about one year’s salary for an employee
who loses his or her job.
The most attractive benefit of the TBC, according to Sorett, is
that the government workers would retain their public employment
benefits. “In this sense, the deal looks very much like a
merger or acquisition in the classical sense,” he said. A
successful example of the TBC concept was the arrangement in Charleston,
S.C., where Navy employees were re-trained at public expense and
teamed with private companies to provide services to the government.
It is unclear what the future holds for the TBC initiative, since
it is only in the early stages of development. Feldman and Sorett
unveiled the TBC plan during a recent conference on public-private
partnerships sponsored by SMI Ltd.
As with any concept that challenges the status quo, TBC may face
significant cultural obstacles.
“Cultural issues are the biggest barriers of all,”
said Stan Soloway, president of the Professional Services Council,
an industry group in Arlington, Va. “The senior work force
is trained to do business in a very traditional model, and quite
frankly, they don’t really understand the commercial market,
the underpinnings of commercial practice. They don’t understand
what goes into a good business deal.” Soloway served as the
deputy undersecretary of defense for acquisition reform under the
“Recognize that you have two things that make it an optimal
time [for public-private partnerships]. One is that you have a workforce
that is close to retirement, so workers won’t necessarily
be disadvantaged. Second, a lot of that workforce is valuable in
the commercial market fields, because they are technology-skilled,
and there’s a shortage of technology workers,” Soloway
Many people in the Defense Department—particularly the uniformed
military—believe that switching to public-private partnerships
means losing control over their operations, said Paul Taibl, vice
president of Business Executives for National Security, an advocacy
group that supports privatization.
According to the Outsourcing Institute, Fortune 500 companies will
spend nearly 25 percent of their budgets on outsourcing—partnering
with providers. For example, Taibl said, Nike owns only the advertising
and marketing. The company outsources all shoe-manufacturing operations.
A commonly used privatization tool at the Defense Department is
the Office of Management and Budget Circular A-76, which mandates
competitions to determine who should perform a job targeted for
outsourcing. The law was designed to provide a level-playing field
between public and private-sector competitors.
But A-76 has been criticized as ineffective by both the government
and the contractors, said Taibl. It is seen as a “difficult,
flawed process, so they look for other ways to achieve their goals,”
“It takes too long. It is too complex. It is implemented
on a piecemeal basis. It is disruptive to morale and adversarial—pitting
the government against the very contractors we say we want as our
partners. And it is so complicated and opaque that both sides of
the competitions have come to view it as unfair,” said Denis
Bovin in recent testimony to the House Armed Services Committee.
Bovin, a vice chairman at the investment banking firm Bear Stearns,
is currently working on reforming the A-76.
An A-76 competition takes 12 to 18 months—too long, according
to some. “While eager to participate in the competitions,
the private companies can’t wait so long for the government
to make a decision,” Taibl said. “It’s the old
adage that time is money.”
On the government side, there’s a perception that federal
jobs are being sacrificed, solely to meet a “budget bogey,”
Bovin said. He said that A-76 competitions save 20 percent, even
when the function is retained in-house, and more than 30 percent
when the private bidder wins.
“Let’s be honest: Whoever wins, public or private,
they probably win, because they eliminated excess jobs,” Taibl
added. “There’s always some certainty of jobs being
lost, but these are taken care of either by attrition or vacant
positions in other areas.”
The Federal Activities Inventory Reform Act of 1998 documents more
than 450,000 civilians performing functions defined as not inherently
governmental or commercial. Also, nearly 500,000 military personnel
are performing commercial functions. The law requires agencies to
review their workforce each year and choose the jobs that could
be performed by contractors.
“Yet, for this year, it appears that they are going to compete
only 16,170 of those positions. ... That is not a very strong program,”
Also, in 1997, the Pentagon said it would evaluate 233,000 positions
by 2003. The goal was to save almost $12 billion between 1997 and
2005. Today, the Pentagon estimates it will compete 180,000 jobs
and the projected numbers are dropping off sharply in the next several
years, according to Bovin.
An OMB directive issued March 19 stipulates that all departments
and agencies have to come up with plans to compete at least 5 percent
of the workforce each year.
“If you look across the federal government, the Defense Department
is probably the only agency that in fact has a very active public-private
competition program. And because it has one, of course, [it gets]
more criticism—there’s nothing to criticize elsewhere,”
B.P. Clark, Navy assistant deputy commander for industrial operations,
cited a program called joint industry-Navy improvements initiative,
designed to bring about standardization of business practices. For
example, aircraft carriers are maintained at depot level in three
locations—Puget Sound (Wash.), Norfolk and Newport News (Va.).
“We’ve had engineering, we’ve had planning, we’ve
had all those processes done in all three locations,” Clark
said. The Navy is considering consolidating operations from the
three locations into one.
Clark said the Navy also is looking at ways to get rid of excess
buildings. For example, the service leased out a prison for private
office space at the Portsmouth naval shipyard. “This is just
the tip of the iceberg,” Clark said of privatization initiatives.
“We still have a long way to go.”
Clark said that current legislation limits how many partnerships
the government can establish with contractors. Title 10 USC 2466
says that no more than 50 percent of maintenance dollars can be
spent in the private sector. “Could it change? Without a doubt.
It changed from 60-40 in a couple of years,” said Clark. Title
10 USC 2553 prohibits selling public services if they already exist
in the private sector, except nuclear submarines.
The abundance of deteriorating excess military buildings presents
a serious problem, said Martin Kitterick, a consultant with PricewaterhouseCoopers.
“There’s serious over-capacity and [base closure legislation]
had really mixed results. In some ways it succeeded, but there have
also been a few horror stories [about the fact that it is] costing
more to keep bases closed, rather than open.”
Kitterick also mentioned instances in which the private sector
bought public property for small sums of money. Within a year, the
private sector turned that property around into multi-million dollar
developments. “There has been egg on the face,” he said.
“The Defense Department doesn’t need to be in the business
of providing housing, of actually building its own buildings; the
private companies can do it cheaper and more effectively,”
John Krajewski, Army assistant chief of staff for installation
management, said a “big gap” remains unfilled, because
the money is tight. “We have to compete for everything else
the Army is doing,” he said. “It’s all one pot
of money, and we don’t compete very well [against the need]
for tanks, bullets and missiles.”
“We have a $150 billion real-estate inventory, and we don’t
know how to take advantage of it. We don’t know how to leverage
assets,” Krajewski said. The Army already has privatized utility
systems. There have been several successful projects to privatize
family housing. At Fort Carson, Colo., private developers invested
$200 million, while at Fort Hood, Tex., they invested $300 million.
For morale, welfare and recreation initiatives, the Army has 35
ongoing public-private projects. “Private companies provide
the service we need and we provide access to the military market,”