Research for Outsourcing

CNA prepared this briefing for the Department of the Navy's Rightsourcing Process Action Team, under the auspices of the Total Ownership Cost Goal Management Board of the Assistant Secretary of the Navy (Research, Development, and Acquisition) (ASN(RD&A)). In this briefing, we review the background of the study and our approach, identify those companies and activities that participated in our study, summarize the factors that we found affect rightsourcing decisions, and describe our key findings.

This study was sponsored by the Deputy Chief of Naval Operations for Logistics (N4) who asked us to assemble the lessons learned in outsourcing and privatization. Earlier work for this study identified new opportunities for the Navy and identified initial lessons learned at a Navy technical center. This study also identified specific ways to streamline the competition process required by OMB Circular A-76, and initial findings of five outsourcing and competition case studies reported in earlier reports issued from this project. In this final report, we focus on privatization, as distinct from outsourcing. We make the distinction clearer in the body of the paper. For this report, we reviewed the economics literature to determine whether (and if so, why) public sector firms are inherently less efficient that private sector firms. We conducted case studies of the office of Personnel Management (OPM) privatization of its background investigations unit, and the Naval Air Warfare Center (NAWC) - Indianapolis privatization. We also examined the competition program run by the City of Indianapolis for many of its city services, including the outsourcing of the local wastewater treatment plant. Finally, we collected information on other privatization, both in the United States and abroad.

The Director of Shore Installation Management (N46) sponsored CNA's participation in an Infrastructure Symposium with RAND from October 16 to 18, 1996 at the RAND Santa Monica facility. Both CNA and RAND have a long history of research in defense infrastructure. By working together, they can build upon each other's research and plan future research better than if they work in isolation. DoD continues to struggle with how to operate more effectively and fulfill its mission when resources are shrinking. In particular, DoD is looking to create a more efficient infrastructure to make funds available for recapitalization and modernization. The primary purpose of the symposium was to synthesize the results of previous and ongoing research projects and thereby identify the best areas and approaches for future research. This paper represents the views of the CNA participants. As many of the results reported were preliminary, we avoid detailing the findings.

In a period of shrinking resource, the Navy is searching for ways to reduce the costs of operating and supporting its forces. Those savings can be used to help recapitalize the Navy as the turn of the century approaches. Past efforts at reducing support costs have often focused on outsourcing or privatizing work that can be done commercially. Evidence from past research indicates that savings are available form outsourcing work and from public-private competitions. The evidence indicates that the pressure of competition, among private sector firms and between government activities and the private sector, is the source of those savings. In the Program Objectives Memorandum (POM) process, resource sponsors pay a price for each billet they authorize. The Navy has begun to include more explicit personnel costs in the POM process. This paper considers the potential for how that cost information may improve manpower resource decisions and examines broader decision-making frameworks as well.