Contractors and the Obama Administration's Defense Budget
Over the last several years Congress has initiated a variety of reforms to both contracting and the acquisition process for Major Defense Acquisition Programs (MDAP). While the two are not directly related they do go hand-in-hand. Some of the law and regulatory changes are due to specific program abuses like the initial tanker lease given to Boeing. Others are a reaction to the large number of contracts being given to provide services and support to the U.S. military. Now Secretary Gates has made two major proposals in his budget for next year that will greatly affect the role of the support contractor in defense and acquisition.
First he wants to reduce the number of contractors involved in supporting the actual acquisition of programs by at least 11,000 as he will convert those to government workers. This is a response to criticism that there are contractors involved in evaluating and having input into source selection decisions; and that too many are also performing what seems to be inherently government work. This is a common perception but in many cases is not true. The acquisition work force since the Nineties has shrunk considerably and decisions have become more complicated. There is a need for experienced professionals that the Federal hiring system may not be able to acquire efficiently. Many of them are former military who have direct experience in using the systems being acquired or being replaced.
Gates' also wants to grow the defense civil service by 43,000 to replace contractors operating in the support-service role. This means, I think, that rather then having contractors maintain facilities, provide equipment support, and operate housekeeping services he will hire government personnel to do this. This will also reduce the number of contractors working throughout DoD in all areas. We may see something like in the pre-1991 era where military depots were staffed with all levels of civil servants. The cost savings of something like this will have to be calculated. This has been one of the great arguments of the last twenty years. Is it cheaper to hire someone through a private company to clean offices or have a GS-2 do that? Is it better to have a GS-12 analyst do something or hire a retired officer with 20 plus years experience do the work?
Another major area where the Government contracts is IT support. This is in many ways a continuation of policies in the Nineties when the Dot Com boom and demand for technological expertise was severely limited driving up salaries. The Federal Government did not have the flexibility to hire someone straight out of college demanding $70 K a year like a fledgling internet company could do. This meant it would require contractors. Now that there is a large group of trained and educated people available it might be easier for the government to hire those kind of skills. Market Connections, a research firm in Northern Virginia, just recently conducted a survey of contractor IT managers about the changes they expect with the Obama administration and the new emphasis on contracting . The results were not that surprising overall. Interestingly smaller companies who have felt shut out feel they have a better chance of winning although in the past the government has perceived the bigger companies as having more capability and the ability to start work right away which may have increased their chances of winning the contracts.
What can be said that the next four years may be a challenging period for defense and service contractors of all shape and sizes. Those who make their money off of delivery complex military equipment to those who build facilities and those who service them. Whether this be cleaning, laundry, feeding the troops or making sure that the computer networks are up-and -running when necessary.