Better Methods Needed To Weigh The Value Of Partnerships Versus Insourcing

The evidence is overwhelming that Public-Private Partnerships (PPPs) work and that they provide benefits to both the public and private defense industrial bases. Whatever the temptations there may be to consolidate logistics, sustainment and repair work in the organic base, what is often called insourcing, they need to be resisted. The preponderance of the evidence as well as expert opinion is in favor of PPPs. Instead of going back to the future, the Department of Defense (DoD) and the Services need to move forward on improving their approach to integrating the public and private sectors.

A study by the Aerospace Industries Association (AIA) proposed five steps that DoD should take to improve its logistics and sustainment efforts. Realizing these potential savings depends on DoD making greater use of the unique capabilities of the private sector to leverage the entire defense industrial base. By AIA’s estimates, implementing these five recommendations could save DoD between $25 and $35 billion a year.

The costs of national defense are rising at an unsustainable rate. Bringing more work into the public defense industrial base will only make this situation worse. Instead, the Department of Defense should go slowly in its efforts at insourcing. The consequences of dismantling working relationships that have produced dramatic increases in capability to the warfighter should not be undertaken lightly or without review. In fact, they should not be made at all without adequate input from the user community.

The government’s analyses that have led to insourcing decisions are, to put it mildly, suspect. Insourcing decisions need to be based on more than the mere prospect of near-term savings. Indeed, the potential for such savings should be scrutinized very carefully. Given the general recognition that business case analyses are difficult to conduct and that there are often disagreements regarding cost elements and the adequacy of the data, decisions to insource should not be made based on a single, closely held analysis.

In addition, DoD needs to develop a single, clearly articulated methodology for business case analyses that support outsourcing/insourcing decisions. Business case analyses need to include the full range of costs and benefits. Cost avoidance such as by reducing stocks of spare parts or spare components, not just cost savings from different labor rates, needs to be part of the analysis. Finally, The Under Secretary of Defense (AT&L) needs to heed the recommendations of his own DOD Weapons System Acquisition Reform: Product Support Assessment, and undertake the necessary steps to improve the analytic and regulatory basis for expanding the use of PPPs.