Why 'cost comparisons' need a wide-angle lens

In determining whether to hire contractors or use agency employees, the price in dollars and cents is only one part of the cost.

Joe Jordan

A significant difference in cost between private- and public-sector employees may support a switch, says OFPP Administrator Joe Jordan. (FCW photo)

The Office of Federal Procurement Policy is seeking input on cost comparisons between private-sector contractors and federal employees. The challenge, it seems, is in figuring out exactly what to compare.

OFPP officials are developing ways to better compare prices relative to the cost of performance and then figure out the most cost-effective option. They are dealing with current policies and possible new ways to save money and drive better results, according to a Federal Register notice from Feb. 15.

Pitting the private sector against the public sector can help agencies to buy smarter -- a key tenet of OFPP Administrator Joe Jordan's -- and also get one sector to lower prices to avoid losing work, officials say.

"Where the difference in cost between the public and private sectors for performance of the same task is significant, the comparison may support conversion of work from one sector to the other," Jordan wrote in the notice.

As the Office of Management and Budget requires, "agencies should perform a cost analysis that addresses the full costs of government and private sector performance and provides 'like comparisons' of costs that are of a sufficient magnitude to influence the final decision on the most cost effective source of support for the organization."

Jordan wants clear methods for handling cost comparisons, including the principles to guide how agencies conduct a cost comparison and any special considerations when a small business has the contract.

Cost comparisons that simply measure dollars and sense may not reflect the entire picture of a cost-effective option. The contract price is only one part of the cost, said Larry Allen, president of Allen Federal Business Partners.

"My concern is that the analysis will look merely at the price—notice, not cost—the government is paying a contractor to do a piece of work and then say, 'that's what it costs,'" he said.

Federal officials need a wider lens for an accurate picture. For example, a proper analysis should include an assessment of the value of allocating resources to a specific project, making them unavailable for another use.

"So, a strategic-level review is critical in order to know what's truly best for government," Allen said. "I would hope that this is the level of review OMB has in mind here and that they enter into this project with an open mind."

Similarly, Robert Burton, former deputy OFPP administrator, said projects under contract are often short-lived, and agencies must question the wisdom of hiring additional employees who may remain in government for decades after a project is completed. Agencies need to consider the cost of health and retirement benefits.

OFPP has kicked off an initiative to further cut costs as the Obama administration has decreased contract spending and told agencies to buy smarter. Fiscal 2012's total spending on contracts was $35 billion less than in fiscal 2009. To build on these efforts, OFPP is considering cost comparisons as another money-saving approach. The initiative is also tied to Congress's order to publish methods and procedures on their decisions to insource a contract from a small business. Lawmakers made the requirement in the fiscal 2013 National Defense Authorization Act, which President Barack Obama signed into law in January.

"OFPP is striving for consistency and uniformity" and it is a laudable goal, Burton said. Yet since 2008, Congress has blocked OMB A-76 competitions that could serve to find the most efficient organization to do the work. The decades-old policy allows federal agencies to outsource certain tasks if the private sector can perform them more cost-effectively than the government can.

A-76 saved the government $395 million in fiscal 2007 by forcing "agencies rethink how their commercial operations are currently structured and how greater efficiencies can be achieved through reorganization," according to an OMB report released in 2008. In the competitions, federal employees won 73 percent of the competitions.

"Competition—nine out of 10 times—guarantees lowest cost," Burton said.

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