The Defense Department is counting on $2.6 billion in annual savings from public-private competitions for the jobs of 150,000 DoD personnel, Deputy Defense Secretary John Hamre said Thursday.
Speaking before the Senate Appropriations Defense Subcommittee, Hamre told Sen. Kay Bailey Hutchison, R-Texas, that on average, the department reduces costs by 20 percent when government personnel win competitions. When the private sector wins, cost savings average 40 percent. The $2.6 billion in annual savings, which are included in the Pentagon's budget plans, are based on the conservative assumption that DoD will win all coming competitions for Defense infrastructure work, Hamre said. If the private sector wins some of the competitions, the savings will be higher, DoD estimates.
The Defense Department is conducting public-private competitions for a variety of activities, including base support, inventory maintenance and payroll management. When DoD officials select an activity for competition, they initiate a cost study under the provisions of Office of Management and Budget Circular A-76. The study helps determine if an activity should be outsourced or kept in-house, based on cost estimates and quality of work considerations.
Hamre said the A-76 process needs to be changed, because it takes too long--two years on average--to complete a competition. In addition, he said the process is slanted in favor of government personnel. Because federal employees have their jobs on the line, they tend to tailor work proposals to make it more likely that the work will be kept in-house, Hamre said. He said most of the changes needed to correct such problems could be made internally, without legislation.
Industry groups and some House Republicans are pushing a bill that would change the A-76 process. Companies charge that agencies do not fully account for their operational costs, giving the public sector an advantage over private firms. The Competition in Commercial Activities Act, H.R. 716, would legislate changes to the rules of public-private competition, sunsetting the A-76 rules and replacing them with procedures private firms consider more fair.
The American Federation of Government Employees, which cautiously supports public-private competitions, opposes changes to the A-76 process, arguing that the rules provide enough latitude for managers considering privatization and outsourcing.
Hamre said the Defense Department is conducting more A-76 competitions this year than in the last 10 years combined. Public-private competitions increased 10-fold from 1996 to 1997, Hamre added.
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