Human Capital:

Civilian Agencies' Development and Implementation of Insourcing Guidelines

GAO-10-58R: Published: Oct 6, 2009. Publicly Released: Oct 6, 2009.

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Federal agencies rely on a multisector workforce composed of federal employees and contractor personnel to perform services as they carry out their missions. Determining whether to obtain services through insourcing with current or new federal employees, outsourcing with private sector contractors, or cosourcing with a combination of the two is an important economic and strategic decision critical to the federal government's effective and efficient use of taxpayer dollars. The executive branch has encouraged federal agencies since the mid-1950s to obtain commercially available services from the private sector when outsourcing is cost-effective. In the last 5 fiscal years, civilian agencies have on average annually obligated about $100 billion to obtain a range of services from contractors. However, in March 2009, the President issued a memorandum on government contracting that, among other matters, expressed concern about the federal workforce as to whether agencies have become overreliant on contractors and have appropriately outsourced services. In particular, the President noted that the line between inherently governmental functions--those that must be performed by federal employees--and commercial activities that may be contracted for has been blurred. In the memorandum, the President directed the Office of Management and Budget (OMB) to lead a series of contracting-related efforts, including clarifying when outsourcing for services is and is not appropriate. Congress, also concerned with the federal workforce, in March 2009 enacted section 736 of the Omnibus Appropriations Act, 2009, which requires federal agencies, with the exception of the Department of Defense (DOD), to devise and implement guidelines for insourcing new and contracted-out functions by mid-July 2009. The statute further requires that we report on the implementation of section 736. In response, we identified (1) the actions taken by OMB to assist affected agencies as they develop insourcing guidelines and (2) the status of selected civilian agencies' efforts to develop and implement insourcing guidelines.

Although section 736 does not specify a role for OMB in the development and implementation of the civilian agency insourcing guidelines, OMB has initiated a number of efforts in response to the President's March 2009 memorandum on government contracting and section 736. In July 2009, after coordinating with key agencies, OMB issued guidance to facilitate the management of the federal government's multisector workforce through an approach that (1) provides an initial framework for planning and managing the multisector workforce that is built on strategic human-capital planning, (2) requires agencies to conduct a multisector human-capital analysis pilot, and (3) provides criteria on how agencies can use insourcing as a tool to manage their multisector workforces. Specifically, the insourcing criteria explain what actions agencies are to take to ensure that they are giving "consideration" and "special consideration" to the use of federal employees, as required under section 736. The OMB criteria specify that agencies generally should conduct cost analyses as part of the insourcing process but note that there may be circumstances where full cost analyses are unnecessary. How cost analyses are to be conducted and what factors are to be considered in the analyses are left to the agencies. OMB is considering what its future role regarding insourcing will be but currently does not plan to formally approve agency insourcing guidelines. It does, however, recognize that its insourcing criteria are likely to be the first step of an iterative process that may be revisited periodically due to the complexity of addressing the multisector workforce, possible changes resulting from its review of the term "inherently governmental," and lessons learned from the multisector workforce pilots. None of the nine civilian agencies we visited met the statutory date for developing and implementing their insourcing guidelines and procedures. Although one agency issued preliminary guidelines, and two others had drafted but not issued their guidelines as of our review, most of the agencies' efforts are still in their early stages. Agency officials told us that they delayed their efforts to develop or issue guidelines as they were waiting for OMB's July guidance to ensure their guidelines were consistent, and some officials noted that they are waiting on additional direction from OMB, particularly as it relates to the definition of inherently governmental functions and when it is appropriate to outsource. Agency officials also identified a number of challenges relating to insourcing such as the complexity of the issue within the broader context of managing the multisector workforce, the time and level of effort involved in coordinating relevant agency functions, and continued uncertainty about the meaning of key terms, such as "consideration" and "special consideration." Agency officials also made some suggestions, such as multiagency working groups to share lessons learned, that they believe may help them in their future insourcing efforts. OMB advised us that the working group on multi-sector workforce management will provide ongoing support to agencies and that OMB will continue to provide information to agencies in response to inquiries.

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