Outsourcing Fever

ou can't throw a rock in Washington without hitting someone who has an opinion on the Bush administration's competitive sourcing initiative. Under the original plan, agencies were supposed to put at least 15 percent of their not-inherently-governmental jobs up for competition by the end of the summer; the quota would ultimately reach up to 50 percent. Although the administration abandoned its government-wide quotas in July, the pressure for competition is going to increase. If Bush confidant Grover Norquist of Americans for Tax Reform has his way, the competition will lead in only one direction: to smaller government.

Norquist and the administration are not the only proponents of more competition-and of the contracts to private firms that will almost certainly come with it. Many Democrats like outsourcing because it makes government look smaller than it really is. By shifting jobs from the civil service to private contractors and grantees, outsourcing allowed Vice President Al Gore to claim that the government workforce was smaller in 2000 than it had been 40 years before.

Many Republicans like outsourcing because it creates private sector jobs. They simply believe that the private sector is inherently more efficient than government. That is why the House fought so hard against putting federal employees in the airports as passenger and baggage screeners and why Appropriations Subcommittee Chairman Harold Rodgers, R-Ky., has imposed a freeze on any further hiring for the screener force, perhaps forgetting the sloppy work that contractors performed both before and after the Sept. 11 attacks.

Even some civil servants seem to like outsourcing-as long as it focuses on front-line jobs, that is. Outsourcing gives federal managers more authority to hire and fire than they could have under the civil service system. It can take months to take action against a poorly performing civil servant, but only a phone call to convince a contractor to remove one of its poor performers. It also gives federal managers more control over performance, or so they think. But contractors make mistakes, too. They can shred tax returns, misuse credit cards and cook the books with the best of them. Just read the stories about MCI, which is one of the federal government's favorite telecommunications providers but was part of the WorldCom meltdown.

Whatever they think in private, proponents of outsourcing almost always argue in public that competition is good for the organizational soul, largely by bringing the market to bear on price. According to RAND, a Santa Monica, Calif.-based think tank, outsourcing competitions have saved the Defense Department 30 percent to 60 percent in operating costs, regardless of whether government or the private sector wins. The savings almost always come from a net reduction in the number of people needed to do a job. The study shows that neither government nor companies enjoy a particular advantage in reducing personnel costs-they both do it the same way, by using fewer people.

The problem is that price is a poor measure of other factors the government might value. Price reveals little about potential performance, for example. Although limited evidence points to competition as a producer of customer satisfaction, there is little objective data showing contractors deliver better performance. Morton Thiokol won the space shuttle solid-rocket booster contract based on price, for example. But the economical design put the burden on two thin o-rings to protect shuttle astronauts from harm. In 1986, the o-rings failed, causing the Challenger to explode. Mellon Bank won an Internal Revenue Service tax-return processing contract, also on the basis of price. But the price was based on how many envelopes are opened per hour, a goal that fell to pieces when rush hour hit.

The administration's decision to abandon the governmentwide targets was not just good policy. It ended two years of unrelenting criticism by labor unions, good government groups and the General Accounting Office. There are many good reasons to put jobs up for competition, but meeting arbitrary quotas is not one of them.

The end to governmentwide quotas does not mean the administration is backing away from putting as many jobs as possible up for grabs, however. The administration is sure to press individual departments and agencies to set quota-based targets, especially now that every government unit will have a competitive sourcing officer in charge of the process and accountable to the White House.

Moreover, there is sure to be intense debate about just how jobs are sorted for possible competition. The administration has already put agencies on notice that it intends to contest decisions to protect jobs by defining them as inherently governmental or essential to an agency's activity.

In some cases, price is all that matters, and in others, worker motivation or productivity is more important. As currently designed, however, the Bush administration's competitive sourcing campaign is based solely on price. It is a guarantee that the nation will get exactly what it pays for-and no more.