Business group names 10 gov’t activities that should be outsourced

John Palatiello, president and owner, Business Coalition for Fair Competition

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The government buys and contractors sell. It’s a simple model, except when it isn’t. Sometimes the government competes with industry.

The Business Coalition for Fair Competition says the government does some things itself that it ought to buy from companies.

“There’s a pretty clear line between what is commercial in nature and what is inherently governmental in nature, commercial nature being that it lends itself to contracting,” John Palatiello, coalition president and owner, told Federal Drive with Tom Temin and Emily Kopp recently. “It’s things that you can find in the yellow pages. It’s activities the government probably should not be involved in in terms of directly providing it.”

He described activities that were “inherently governmental” as things that only the government can or should do. While that may be an easy to understand distinction, the coalition identified 10 cases where the government was involved in activities that it considered commercial in nature.

In one case, NASA was operating the Michoud Facility in New Orleans, where movie companies can shoot films. In another, UNICOR, a federal corporation, uses prison labor to manufacture products and provide services to other agencies.

One long-running example is the Department of Defense operating 178 commissaries, something that Sen. Tom Coburn (R-Okla.) has complained about in the past.

Coburn recently released Wastebook 2013, the lastest edition of his annual report tracking wasteful government spending.

“With sequestration and the requirement to make cuts, it’s reasonable to question whether DoD should be in the grocery store business, particularly on the domestic front,” Palatiello said. “And there are movie theaters that the Defense Department is operating that’s costing the taxpayers money, and again, DoD is even reviewing and questioning whether this is a line of business it should be in.”

The Obama administration published in its regulatory agenda for 2014 that it will be taking another look at how “inherently governmental” should be defined. The phrase was a part of Office of Procurement Policy language for a number of years before Congress codified it into law as part of the Federal Activities Inventory Reform Act of 1998.

Palatiello and the coalition believe that the administration has broadened the definition of “inherently governmental” and encouraged encroachments of the government into the private sector.

“That, of course, brought on the phenomenon of insourcing,” he said. “I understand our friends in the government employee unions believed that the Bush administration was contracting things out that were inherently governmental in nature, but in fact, under insourcing, what has come back into the government without any cost comparison, without any analysis are clearly commercial activities.”

Under these conditions, Palatiello said, activities such as food service, mapping and audio-visual services are being insourced rather than being outsourced to the private sector. “No serious observer of the process would consider those inherently government, but those have been insourced,” he said.

Agencies may argue that insourcing for a particular product or service is cheaper than outsourcing, but that’s difficult to determine without conducting a cost analysis, which is provided for under Office of Management and Budget Circular A-76.

“You do a cost analysis under A-76 if you go from government performance to contractor performance,” Palatiello said. “What was not occurring was doing a cost analysis to go from contractor performance to bring something back inside the government.”

The current administration has not been as aggressive as the previous administration in applying A-76, which, according to Palatiello, is wreaking havoc within the government.

“When you look at things like commissaries … I would think that the government employee unions would want to see an A-76 performed rather than just a wholesale closing of that system and a rift of government employees,” he said. “When you have sequestration on one hand and then you put a handcuff on the agencies on the other hand and say, ‘But you can’t look for efficiencies, you can’t achieve the targets of sequestration by becoming more efficient,’ then that’s an untenable situation.”


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