Plans For Insourcing Will Cost Money

For more than a decade, the Department of Defense (DoD) has pursued a deliberate strategy of trying to better integrate the public and private industrial bases supporting military needs. The centerpiece of this strategy is the creation of public-private partnerships (PPPs) and the implementation of an approach to logistics and sustainment known as Performance-Based Logistics (PBL). By capitalizing on the comparative advantages of the public and private halves of the defense industrial base, DoD is able to support the warfighter while reducing costs for maintenance and sustainment and improving the availability of weapon systems they need.

The record of PPPs, in general, and PBL, in particular, is very good. Government, industry and academic studies all have reached the same conclusion: contracts have led to improvements in availability in the neighborhood of 20-40 percent while typically reducing costs by 15-20 percent. Improving availability creates an additional cost savings by reducing the total number of systems required in order to meet the warfighter’s needs. By streamlining supply chains and improving inventory control, PPPs have achieved hundreds of millions of dollars in cost avoidance. Also, the private sector has invested many millions in the organic industrial base, provided invaluable training for government workers and transferred critical intellectual property. The integration of the public and private sector has led to collaborations in the production of new weapons systems such as the Stryker vehicles and aircraft and vehicle engines.

Despite this record of success there are increasing signs that some in DoD are seeking to move backwards, bringing more work into the organic industrial base and sidelining the private sector. The Air Force has been particularly aggressive in seeking to insource work. What is incredible is the assertion that insourcing will save money — a contention that is refuted by studies done by DoD itself, as well as the Government Accountability Office, RAND, Aerospace Industries Association, Logistics Management Institute and even the Air Force.

There are clear perils to increased insourcing. It comes with a potentially very high price tag, most obviously in the increased costs of goods and services acquired in the maintenance and sustainment process. It is inconceivable that the government can assume responsibility for program integration and supply chain management, activities that it has proven notoriously poor at performing, and save money. There is also the danger of reducing the availability of vital weapons systems with consequent risks to the warfighters. Moreover, arguments for insourcing often are based on erroneous or unsubstantiated conclusions about the relative advantages and costs of work performed by the private and public sectors. Then there is the risk that by insourcing, DoD will diminish the very private industrial base on which it must rely for the next generation of capabilities.

Insourcing should be considered only in the context of a comprehensive strategy that balances the needs of both the public and private sectors. Such a strategy must reflect the full range of factors involved in alternative approaches to maintenance and sustainment work, not merely annual budget impacts. Without a thorough and complete analysis of all the costs involved, the effort at insourcing is likely to harm both the public and private sectors. Even then, insourcing should only be undertaken when a clear and convincing case can be made that it is the superior option.