Conflicting Rules Require Defense Dept. to Hire and Fire Workers

By Sandra I. Erwin
Congress wants the Defense Department to hire more civilian workers to replace contractors. It also is directing the Pentagon to downsize its civilian and contractor workforce by 5 percent over the next five years.
The seemingly-at-odds mandates illustrate the perplexing realities of the defense business as various factions within Congress and the administration clash over military spending.
As per last year’s defense authorization bill, the Pentagon must hire public servants to fill skilled jobs that are currently performed by contractors. The Senate’s version of the fiscal year 2013 bill, meanwhile, proposes to save $5 billion by reducing Defense Department civilian employees and private-sector contracts.
Sen. Carl Levin, D-Mich., chairman of the Senate Armed Services Committee, acknowledged that the new language, which has yet to be debated in a House-Senate conference later this summer, partly contradicts current policies that call for increased hiring of public workers.
“It kind of runs in the opposite direction” of the legislation that requires the Pentagon to bring in-house thousands of jobs, Levin said June 14 during a breakfast meeting with reporters in Washington, D.C.
Levin said the SASC recommendation is to cut civilian and contractor jobs by 5 percent, in proportion to the administration’s proposed reductions in military personnel. Nearly 100,000 ground troops are on the chopping block between now and 2017.
Asked whether this language would overrule the mandate to in-source more jobs, Levin said it is possible to do both. “I don’t know that it would overrule the [in-sourcing] policy,” he said. “I think you kind of have to make it work together.”
The legislation, however confusing, has added fuel to defense industry jitters as companies already face a significant business slowdown as a result of the current budget impasse.
“When there are budget cuts, particularly in the face of directives that work be in-sourced, the level of work available for contractors will fall,” said Justin M. Ganderson, an attorney at McKenna Long & Aldridge LLP, a firm that represents top Pentagon contractors.
“This creates concern more than confusion for the contracting community,” he said. “It is clear from the current budget situation that DoD likely will reduce its total workforce, including contractors.”
The apparent contradiction in the defense bills “creates anxiety because no one knows exactly what types of positions will be cut and what work will be in-sourced,” said Ganderson. Regardless, the private sector already is taking a beating, he said. “There is less work and contractors are fighting harder to get contracts.”
Since the Obama administration kicked off government-wide in-sourcing in 2009, the policy has especially rankled Pentagon contractors because of the stakes involved. The Defense Department is the government’s biggest buyer of contracted-out services — estimated at about $200 billion a year. In 2010, the Pentagon added 17,000 employees to its payroll as a result of in-sourcing efforts. Pentagon officials have defended the policy as a necessary rebalancing of the workforce that, after nearly two decades of steady outsourcing, is lacking critical skills. Congress agreed that the pendulum had swung too far in favor of outsourcing.
Ganderson noted that some lawmakers believe in-sourcing jobs save money. “This is not universally true,” he said. “I don’t believe there are adequate cost metrics to compare the cost of in-sourcing apples-to-apples with the cost of outsourcing.”
A topic that is often the source of controversy is how to calculate government expenses vis-à-vis contractors’ costs, he said. “This issue often leads to skewed results. “Given the current dormant state of A-76, this discussion seems to be dead on arrival these days,” he said. A-76 is a federal contracting mechanism that allows for government and industry to compete head-to-head for specific jobs.
The administration’s in-sourcing initiatives did suffer from bad timing because of cost concerns. After initial momentum, former Defense Secretary Robert Gates became alarmed after learning that defense agencies were expanding public-service ranks and not necessarily cutting  back on contractors. He set stricter guidelines for hiring, and in 2010 imposed a hiring freeze except in critical jobs that are considered “inherently governmental.”
Defense contractors, nevertheless, are worried that congressional pressure to step up in-sourcing over time will deal a significant blow to the industry, said Ganderson.
In April, 26 senators wrote a letter to Defense Secretary E. Leon Panetta demanding that the Defense Department in-source more work to civilian employees. A similar letter, signed by 131 House members, was sent to Panetta in March.
Lawmakers were displeased by the Pentagon’s move to freeze its civilian workforce at 2010 levels, while no comparable constraints were imposed on hiring contractors.
Pentagon officials insist that in-sourcing continues as planned. Jo Ann Rooney, principal deputy undersecretary of defense for personnel and readiness, provided written responses to both Senate and House letters. Consistent with the National Defense Authorization Act for Fiscal Year 2012, she said, the Defense Department will continue to “deliver a balanced, flexible, responsive workforce” that includes an “appropriate mix of military, civilian and contracted support.”
Rooney stressed that the Defense Department expects to reduce outsourced services in compliance with Section 808 of the 2012 NDAA, which will “limit total obligations for contracted services.” New guidance will require “inherently governmental work” to be “immediately in-sourced to government performance or divested.” The Defense Department also will “reduce obligations for staff augmentation contracts and contracts for the performance of functions closely associated with inherently governmental functions by 10 percent in fiscal year 2012 and fiscal year 2013.”
Rooney’s comments portend more pain ahead for contractors. Ganderson said his clients are baffled by the ambiguity of in-sourcing guidelines. He cited a Sept. 2011 Office of Federal Procurement policy that says agencies must in-source functions that are “inherently governmental.” But the term’s definition is open to interpretation, he said. “This may lead to inconsistent sourcing decisions. … It may also lead to less work for industry, depending upon agency interpretation,” said Ganderson. This makes “industry very nervous.”

Topics: Business Trends, Doing Business with the Government, Service Contracts, Government Policy, Procurement, Defense Contracting

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