Outsourcing: The heat is on

May 7, 2001

To outsource or not to outsource?For most agencies, that is <i>not</i> the question. The question now is: When and how?

| GCN STAFFTo outsource or not to outsource?For most agencies, that is not the question. The question now is: When and how?To be sure, the pressures to outsource are mounting. The scarcity of information technology specialists is a big driver; 'the human capital crisis' is the hip buzz phrase among IT folks.And the crisis is expected to intensify as computer specialists retire or leave for high-paying industry jobs in coming years.The Bush administration meanwhile is pressing agencies to do more outsourcing, largely by expanding competitions under the Office of Management and Budget's Circular A-76.President Bush's 2002 budget proposal directs agencies to open for competition at least half of the positions listed in their Federal Activities Inventory Reform Act inventories'about 850,000 jobs deemed potentially commercial and therefore outsource-able'over the next eight years.To this end, OMB deputy director Sean O'Keefe has ordered agencies to compete or outsource at least 5 percent of their FAIR Act jobs in fiscal 2002 and provide plans for meeting the goal.But at the same time, federal labor unions and other organizations opposed to more federal outsourcing'at least not without intense scrutiny'are preparing for a fight.Their rallying point is the Truthfulness, Responsibility and Accountability in Contracting Act, reintroduced in February by Rep. Albert Wynn (D-Md.). HR 721, which has 125 co-sponsors, had expired last year in the House.The TRAC Act would suspend any new government outsourcing until agencies establish methods to track the costs of service contracting, prevent work from being awarded to contractors without letting federal employees compete and subject work performed by contractors to public-private competitions.Unions supporting the TRAC Act apply the same approach to any job within government'they recognize few distinctions between outsourcing IT and outsourcing other functions and services.'The principles we'd like to see enacted into law are no different, whether it's cutting lawns or IT,' said John Threlkeld, legislative representative for the American Federation of Government Employees, which has 600,000 members.As for the IT work force shortage, labor organizations blame the government.'The human capital crisis is self-inflicted,' Threlkeld said. 'It's felt acutely in the IT sector because [agencies] haven't been paying IT people enough to attract and keep them.'Organizations that oppose TRAC argue that it would do more harm than good.Stan Soloway, president of the Professional Services Council of Arlington, Va., which represents federal contractors, said TRAC, if passed, would create 'a management and operational disaster of sizable proportions for the government.'The American Consulting Engineers Council of Washington goes even further, calling TRAC 'the government shutdown bill.'In the months ahead, the skirmishes over outsourcing will play out in Congress.'We're having to outsource more and more because we don't have the in-house capability to do it,' said Rep. Tom Davis (R-Va.), chairman of the House Government Reform Subcommittee on Technology and Procurement Policy and a supporter of outsourcing. 'The response to that by some groups is [the TRAC Act], which forbids more outsourcing. We need to sort this out.'To do that, Davis said he will take 'a long, hard look' at outsourcing and has scheduled a hearing on it for June 28.'We're going to look at outsourcing and privatization generally,' including the FAIR Act, the TRAC Act and A-76, said David Marin, legislative director for Davis.Davis said, 'It appears that some agencies are simply going through the motions when it comes to compliance' with the FAIR Act.The FAIR Act, which became law in 1998, doesn't mandate outsourcing but requires agencies to issue an annual list of functions that are not inherently governmental and could be performed by contractors. Any interested party can challenge the omission or inclusion of a particular job category. Few contractor challenges have been successful.Outsourcing has become such a riddle that Congress, in the fiscal 2001 Defense Authorization Act, ordered the General Accounting Office to convene a panel to study federal outsourcing policies.Comptroller general David Walker last month named the 12-member Commercial Activities Panel, which must report its findings to Congress by May 1 of next year.The use of OMB Circular A-76 reviews has become a particularly vexing problem. Davis termed it 'a broken process.''A-76 doesn't work for federal employees, and it doesn't work for contractors,' he said.The circular is based on the notion that government should not compete with the commercial sector. It requires agencies to conduct cost comparisons between contracting and doing the work in-house. Once agencies have written a performance work statement, they can then compete the activity and award a contract to the lowest bidder, convert the activity to outsourcing or seek a waiver.'A-76 is not contracting out,' said Diane Shute, practice director for the strategic sourcing group at Grant Thornton LLP of Vienna, Va. 'It's a method for cost comparison. It's a process that could result in contracting out.'But the A-76 process is time-consuming, costly, tedious and disruptive, government and industry officials said. The Defense Department estimates that the typical A-76 study takes 18 months.And the results can be messy, as the recent flap over an A-76 competition at Lackland Air Force Base in Texas showed []. It's no wonder the thought of getting hit with an A-76 study brings fear and trembling to federal managers.'It's bad news, in my mind, that the administration is trying to get the government to go through A-76 competitions,' Terence Tychan, deputy assistant secretary for grants and acquisitions at the Health and Human Services Department, told a group at the recent FOSE conference. 'It's just such a cumbersome way of doing things.'Government labor unions tend to support A-76, but they also see flaws.'It's certainly not a perfect system,' Threlkeld said. 'Our biggest concern is that it's being used in a one-sided fashion. There are all sort of loopholes to allow work to be contracted out outside of A-76.'Grant Thornton's Shute said: 'The unions love A-76 because it gives them the chance to compete. On the other hand, they are struggling with how the competition is set up and trying to find ways to make it more fair for them.'The administration, in its 2002 budget blueprint, said the A-76 process must be streamlined.Davis also has promised to take action. He's pushing a bid-to-goal alternative to A-76 that would give in-house employees a chance to revamp operations and cut costs without first facing competition from the private sector.Although A-76 competitions can be fraught with difficulty, direct conversions to outsourcing through A-76 also can lead to trouble, Shute said. 'If it's going to end up in a work force reduction, the unions and employees are going to fight it,' she said.For agencies migrating to outsourcing, working out a deal with unions to avoid layoffs is, to varying degrees, part of the process.'The important thing is to have the union involved up front in looking at the decision,' Treasury Department chief information officer James Flyzik said.The nascent Navy-Marine Corps Intranet, the government's largest outsourcing project, illustrates a successful agency-union cooperation. NMCI will affect the jobs of roughly 1,200 IT workers, said Thomas Scruggs, a member of the Navy CIO's enterprise, architecture and standards team.'The unions played a very important part in the early negotiations,' Scruggs said. 'From the standpoint of jobs, there were two alternatives. One was that [employees] could move to other IT jobs, principally in the systems areas,' or they could choose to work with Electronic Data Systems Corp., the NMCI contractor.In the end, union support for the arrangement was strong, he said.For Patrick Schambach, CIO of Treasury's Bureau of Alcohol, Firearms and Tobacco, potential job loss wasn't a big concern when ATF was preparing to outsource its desktop and network services to Unisys Corp. in 1997.'I didn't displace any employees,' he said.During ATF's chaotic pre-outsourcing days, its 85 in-house IT staff members spent much of their time on haphazard triage amid a mish-mash of hardware and software platforms.'We had people that were doing end-user support as an ad hoc assignment,' Schambach said. 'It wasn't their primary duty.'Once Unisys assumed support functions, the in-house techies went back to what they were hired to do: database support, application development and other tasks.The only issue for the National Treasury Employees Union was training.'They wanted to make sure that people were properly trained for the new equipment as we were rolling it out,' Schambach said. 'So we put together a three-day training program for every employee as the rollout was occurring.'Schambach's program is one of government outsourcing's most conspicuous successes [GCN, April 17, 2000].Nonetheless, comprehensive forms of outsourcing, such as seat management, have been slow to catch on.'It isn't always pretty,' said Mark Hagerty, program manager for the Desktop Outsourcing Initiative for NASA, which has 11 delivery orders in place'10 within NASA'for managed PC services. Employee resistance was a major hurdle. 'We failed miserably in communication,' Hagerty conceded. 'A lot of outreach has to take place. I still get a lot of customers who don't want anything to do with it.' Industry officials also accept some blame. In pitching seat management, they acknowledge that they made it sound too easy.'Industry promised more than it should have,' said Christopher Miller, director of global network services sales for Unisys.But some think it's only matter of time before more agencies go to comprehensive outsourcing.'I think it will catch on,' said Dean McKendrick, senior vice president of the network services division at DynCorp of Reston, Va., which has task orders for two agencies under the General Services Administration's Seat Management Program. 'There's a little bit of wait-and-see. NMCI will generate interest.'Government observers are cautiously optimistic. 'The tone of the interest is a little more serious than it's been,' Hagerty said. 'In the past, it's been more kicking the tires. Now it seems to be a little more focused.'

IT chiefs see need; opposition mounts

BY RICHARD W. WALKER

Outsourcing winner:
ATF farmed out its desktop and network services without cutting jobs, CIO Patrick Schambach says.

Operational disaster?

'We failed miserably' in selling the concept of ODIN to employees, NASA's Mark Hagerty, left, says. Rep. Tom Davis (R-Va.) wants to review all aspects of outsourcing.

A-76 is 'broken process'

GCN, April 16, Page 1

Clumsy competitions

Case file: OSD

Who: Office of the Secretary of Defense

What: OSD in January awarded Lockheed Martin Systems Integration of Owego, N.Y., a 10-year contract through the General Services Administration's IT outsourcing program. The contract will cover 7,000 seats on the Non-Classified IP Router Network.

Description: Lockheed Martin's Systems Solutions of Manassas, Va., will supply seat management, network services, application packages and development, information assurance, document management and enterprise e-mail. Lockheed Martin Information Support Services of Seabrook, Md., will support OSD's desktop systems and related infrastructure.

Scott Ducar, technical director of network operations in the Office of the Assistant Secretary of Defense for Command, Control, Communications and Intelligence, said Lockheed so far has rolled out about 1,000 seats. 'C3I is the guinea pig,' he said.

Upshot: 'It wasn't to save dollars, although we are very cost-conscious,' Ducar said. 'The real reason was to improve service to our users. They were not getting the level of service they needed to fulfill their missions.'

The organization also wanted to identify its total cost of ownership. 'Many of our IT expenditures were hidden in line items hither and yon,' Ducar said. 'We didn't have a clear idea of [what] we were spending on IT.'

Another benefit: Lockheed Martin's large R&D lab. 'We're leveraging off their lessons learned on what they're doing for other customers,' Ducar said. 'We couldn't afford to do that ourselves.'

Case file: HCFA

Who: Health Care Financing Administration

What: HCFA in June 1999 struck a three-year, $25 million deal with Science Applications International Corp. of San Diego under the Outsourcing Desktop Initiative for NASA program for managed PC services at HCFA headquarters in Baltimore, its Washington office, 10 regional sites and 14 other locations.

Description: HCFA wanted to move to a common computing environment and be year 2000 ready in one sweep. SAIC, one of seven ODIN contractors, replaced a jumble of PC brands and operating systems with Microsoft Windows NT running on IBM Corp. hardware. The company had installed 3,500 seats by September 1999. It now serves 5,500 seats across the country, including 300 notebook PC users.

Upshot: 'I think we've met our expectations and then some,' said Ed Gray, manager of HCFA's Desktop Replacement Initiative. HCFA has kept costs down and technology up-to-date, he said.

SAIC has just completed a 1,000-seat hardware upgrade to IBM NetVista PCs, Gray said, adding that HCFA's hardware is on an 18-month refresh cycle. Later this year, the contractor will embark on an enterprisewide software upgrade to Windows 2000 and Microsoft Office 2000.

'Your relationship with your contractor is a big thing,' Gray said. 'The partnership approach works so much better than an antagonistic one. That's true in a lot of areas, but it's especially true in seat management.'

NMCI collaboration

Promises, promises

NEXT STORY: Notebook PCs go wireless

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