New DOD cost analysis reg 'just wrong'
- By Stan Soloway
- Jul 31, 2013
With little fanfare, the Defense Department announced in July that Directive Type Memorandum (DTM) 09-007 was being turned into a DOD Instruction. In other words, what had previously been intended as guidance now has regulatory status within the department.
This is a development that should concern anyone who believes that the Defense Department must have accurate and meaningful cost data when it seeks to determine whether performance under contract or by its organic workforce is most cost effective.
Yet, the DTM was turned into an instruction with nary a sound of objection. Indeed, unlike most all federal regulatory processes, its conversion to a DOD Instruction provided no opportunity for outside comment and critique. Oddly, the initial DTM was classified for reasons unknown, and getting information as to the details it contained proved unnecessarily difficult.
The new DoD Instruction reportedly includes some changes from the last version of the DTM but since it has not been publicly shared we have not yet completed our analysis.
But credible critiques of the earlier versions of the DTM certainly exist and DOD is well aware of the them. Two years ago, the Center for Strategic and International Studies (CSIS), a highly credible and independent think tank, which also happens to be led by an equally highly regarded and credible former Deputy Secretary and Comptroller of the Defense Department, released a comprehensive analysis of the DTM.
In so doing, CSIS sought to achieve three objectives:
- Assess the degree to which the DTM fully captured all relevant government and industry costs.
- Assess the relative accuracy of the DTM as opposed to the existing cost comparison process utilized in competitive sourcing.
- Propose ways in which either or both methodologies could be improved to ensure the government was actually getting accurate data.
The study offered a scathing analysis of the DTM, and even concluded that, warts and all, the existing cost comparison process used for competitive sourcing was substantially more accurate, a fact that most seemed happy to ignore.
Sadly, DOD showed little interest in the CSIS-issued study, although no one who has reviewed it has yet to identify a single area in which it is either inaccurate or biased.
Also conveniently ignored was that the CSIS analysis identified a series of reparable weaknesses in the DTM, including that it is not a “process” at all but simply a list of cost factors to be considered in an analysis. So too was the DTM’s failure to capture the full scope of real and measurable government cost, from overhead to lifecycle personnel costs, and its failure to prescribe a process, built around a common statement of work, from which a sound analysis could actually be conducted.
Even more disturbing was the department’s disinterest in the most important and valuable aspect of the CSIS study: how to get better cost data and a better analysis.
This process improvement, which is entirely agnostic as to outcome, is precisely the kind of step forward that many in the department and in Congress have long said they would welcome. But it turns out that it is only welcome as a concept rather than a reality.
There are many possible or likely reasons for DOD giving critiques of the DTM the cold shoulder. None are provable and thus we are left to only speculate.
But we do know that there remains within the department a lingering, yet long disproved, belief that contractors are more expensive than federal employees.
This was made clear in comments from the DOD comptroller at a congressional hearing during which he responded to a comment that contractors are three to four times as expensive as federal employees that “that sounds about right.”
About right? No comprehensive analysis has ever concluded anything of the kind; not even close. And it was precisely because DoD was not achieving the presumed savings from insourcing that then-Secretary Gates effectively shut down the initiative; so too did Army Secretary McHugh.
The theory was also disproved in those rare but significant insourcing activities undertaken by the department for which the data and/or process underpinning the decisions was obtained one way or the other.
About right? Maybe if DOD had paid closer attention to objective analyses rather than their own preconceived notions, the answer itself would’ve been closer to right.
Now we have a DOD Instruction to guide decision-making that is based on a memorandum that objectively we know is not even close to “right.” And especially in this era of fiscal constraints, that’s just wrong.
Stan Soloway is a former deputy undersecretary of Defense and former president and chief executive officer of the Professional Services Council. He is now the CEO of Celero Strategies.