By Steve Kelman

Blog archive

Contracting out strikes out again among my students

For a number of years in my introductory management and leadership course for first-year master's students in our public policy program, I have taught a class on the make-buy decision for government: When should the government produce a product or service in-house, and when should it contract it out?

The class is based on a case involving a decision by the Massachusetts Department of Social Services to contract out delivery of child protective services for Latino immigrants to a Latino community organization. However, we also discuss a number of other situations. The class includes an Internet poll the students complete before class about whether government should "generally" contract out prisons, benefit determinations for welfare recipients, operation of data centers for the college student loan program, operation of campsites at national parks, or cost-benefit analysis studies used in preparing an environmental regulation.

Because of the Internet poll, which has had the same questions over the years, I can see how student attitudes toward these issues have changed over time. Around two or three years ago, I noticed student support for contracting out starting to dip. In earlier years, about a quarter of students favored contracting out prisons and benefit determinations, with about 60 percent opposed and the remainder not sure. About two-thirds favored contracting out the data centers and the cost-benefit analysis, with less than 20 percent opposed and the remainder not sure.

In recent years, these numbers have gradually but continually trended away from supporting contracting. This year's figures showed the lowest support for contracting out yet. Only 4 percent favored contracting prisons. For the first time (except for one of my two sections last year), a majority – 50 percent -- opposed contracting out campsites, with 40 percent in favor and 10 undecided. And support for contracting out the data centers and the regulatory analysis dipped below 55 percent.

During the class discussion, students did not say many nice things said about contracting. Virtually nobody mentioned the idea that it might produce cost savings or better quality through competition. A student opposed to contracting out data centers stated that the government should be able to do this more cheaply because it didn't have to make a profit (the student's economics professor should take note). Although a few students argued that nothing was "inherently governmental" besides lawmaking and the military, most were concerned about contractors being authorized to use force or make policy decisions. One student said he would trust the government to keep his private data private more than he would trust a private company. Many students expressed, in one way or another, the idea that contractors would try to expand their work or damage the customer's interests whenever they could.

Yes, to be sure, these students are in a public policy program. But by no means all of them are headed to work for the government. Actually, a lot will end up at consulting firms that sell to the government. They are mostly liberal, but not generally dogmatic -- these are the same students who, as I reported recently in this blog, wanted to fire or discipline a TSA civil servant who had allowed a security breach at Logan Airport. And, to the extent they are going to work for government, they represent the ideas that many in a new generation of government employees hold. Mostly, I am guessing, their views reflect media coverage of government contracting.

I am using this blog post to report what I observed, not to express my own opinion. I think a minimal conclusion that this pattern of responses suggests is that, if one believes that the decision to contract often makes sense, at least potentially, for government, we need to make sure that this potential is realized in reality to secure the appropriate place for contracting in the government of the future.

Posted on Nov 10, 2011 at 7:27 PM

Reader Comments

Sat, Nov 12, 2011 Shaun McGinnis United States

Your students are exactly right. That is exactly what contractors that want to 1) keep their contracts for a option period/follow-on contract, 2) expand their core competencies and/or 3) increase profit margins, do. Contract procedure: They get a contract, listen to the customer and expand their product/service offerings anywhere they can. The “expansion of services” is configured to fit the “scope of the contract.” (Modifying a contract is much easier than soliciting and awarding a new one.) Economic impact: Small companies get contracts, implement “contract procedure” above, offer a diverse range of services (which no normal company provides, i.e. aircraft maintenance and electrical engineering), grow to be large businesses and receive the follow-on contract as a result of 1) a contract which two services are not related (out of scope) and 2) an ambiguity in the below cited authority. This follow-on contract will be “un-available for competition as a result of an ambiguity in the Statutory Authority. The Authority?….10 USC 2304©(1) implemented at FAR 6.302-1(a)(2)(ii). The most abused undefined word in the FAR is “Substantial duplication of cost” and "Unacceptable delays”. How do we measure “substantial” and “unacceptable delay”? That’s rhetorical. The economic impact is less competition, large business monopolies and no small business stimuli. I don’t need to say some companies have done very well using this strategy for a very long time. I am excited to see you are educating, hosting dialogue, and fostering growth in a very important niche of our economy & policy. From those that are concerned...Thank You.

Sat, Nov 12, 2011 Shaun McGinnis United States

Contracting-in & contracting-out policy changes occur on a very distinguished 4 or 8 year rotation. Every change of the executive office brings a myriad of insourcing and outsourcing meetings rendering Contracting Office Chiefs across the US unavailable for 2-3 months proceeding an election. The positive impact of these policy changes are….Increased jobs? Economic stimulus? As you know better than I: The evaluation factors for these make or buy decisions also include a risk evaluation. Without talking about the different types of risk analysis and measurements procedures, I would suggest there is a subconscious psychological risk evaluation being executed within your students minds. Could it be: The reduction of confidence your students have with the government itself (vs media coverage) is reflected in their make-or-buy risk evaluation. Is it their decision to keep production “in-house” because it’s being used as risk aversion technique, if only in theory? Having awarded the government contracts which receive this type of media coverage and being of student/academic mentality, being at a “younger" age and having seen the effects of these public policy, legislation and regulation changes allow me to relate to your students thought processes. (If there data was available I would be interested in a regression analysis to determine how correlated variables including insourcing/outsourcing, confidence in government, policy ect., economic conditions and/or student work experiences are.) Also, you mentioned "Many students expressed … "the idea that contractors would try to expand their work or damage the customer's interests whenever they could.” Continued In Next Comment

Thu, Nov 10, 2011 Mehmet Akif Demircioglu Bloomington, Indiana

That's very interesting. Thank you very much for sharing your experiences, Dr. Kelman. Several issues have appeared in my mind. First: Rather than "Massachusetts Department of Social Services to contract out delivery of child protective services" which their service is very close to citizens, students/citizens view about the contracting out in a service of the foreign affairs or the military may be more positive. It might be because citizens in the United States usually concern their local and state government. What's more, citizens may be more sensitive about social services particularly when they have more liberal tendencies. In addition, students' responds regarding the contracting out may be different during economically "bad times" or "good times" in the government. So, during the economic crises, many people may not support contracting. Finally, it is believed that private sector works efficiently. It means that private companies hire fewer people than what the government hire. Therefore, particularly when the unemployment is high, students/citizens may favor "big government."

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