Academic journal article Military Review

DOD Outsourcing and Privatization

Academic journal article Military Review

DOD Outsourcing and Privatization

Article excerpt

Since the Cold War's end, the Department of Defense (DOD) has borne about 80 percent of all government cutbacks. After four rounds of base closures, cutbacks have resulted in the loss of around 355,000 civilian and 743,000 military slots. This means more competition for private defense workers and less security for mid- and lower-level DOD personnel.

All the heavy cuts in DOD's permanent work force have still failed to generate enough savings to offset planned procurement expenditures called for under the May 1997 Quadrennial Defense Review. In June 1997, 15 business leaders from the Business Executives for National Security, a group of US defense contractor executives, declared that DOD could make up the procurement shortfall of around $15 billion through more aggressive outsourcing and privatization (O&P). For those facing the one-two O&P punch for the first time, the financial reasoning to contract out jobs is confusing and elusive. Where are the savings? You need not have an encyclopedic grasp of things-financial to figure it out. The savings come, in the main, from cutting the expense of keeping permanent employees.


Financial hocus-pocus from countless industry-oriented consulting firms disguise the fact DOD O&P savings generally remain inconsequential at best, anecdotal at worst. Outsourcing and privatization have common sources for bigger, blacker bottom lines-lower labor costs. It is the potential of reducing those costs in the short term that compels many company executive officers and the safely stratospheric (military and civilian) bureaucrats to tinker with the O&P moniker.

About 40 percent of the biggest companies in the United States have outsourced at least one major piece of their operations.' Workers with "permanent jobs" get their first introduction to outsourcing with all the gentle indoctrination of Cambodian communism. This fashionable management paradigm swings its scythe at employees public and private when leadership becomes convinced that expertise is more economically and practicably contracted out than grown within.

Fundamentally, outsourcing is the pursuit of reduced employee labor costs at a break-even quality. Specialization metal is used for this economic alchemy. The presumption is that workers focusing on a particular productive activity will have been led by enlightened management to invent economic efficiencies that can deliver a service or product cheaper than those in-house.

Outsourcing occurs in industry when a company believes it can save money moving in-house activities to an organization that specializes in a given line of work. Such companies are either trying to belt-tighten or, if they are growing, want to refocus their efforts on core functions. As average defense workers know, many DOD activities have been directed to "save money by outsourcing" no matter how much it costs.

Operation Joint Endeavor in Bosnia was the quintessence of DOD outsourcing. According to Armed Forces Journal International editor John Roos, it produced a real windfall for contractor Brown & Root.2 Labor savings were realized through the Logistics Civil Augmentation Program (LOGCAP) using contractor labor at $100 million dollars compared with the $318 million dollars it would have cost to have soldiers do the work. Support for government employees-retirements, solid benefits, free chow and so forthwere expenses the contractor, in the main, did not have to countenance Lesson learned: While other ways of reducing costs exist (for example, velocity management, process reengineering, single-stock funds, use of technology, and so on), none are as readily demonstrable or as quickly registered as payroll reductions.


Privatization-the movement of functions, and often concomitant resources, to the private sector, which had been performed by government employees-places a public trust into a market-oriented company's hands. …

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