Government, industry must hammer out rules of engagement

Last year industry promoted the Freedom From Government Competition Act. The bill went nowhere, in large measure because it would have excluded government workers from competing for work. This year industry has developed a less radical bill, and Horn, one of the best friends of good government in Congress, has introduced a bill of his own that would require agencies to develop an inventory of commercial activities and, over a specific schedule, open them up to competition, with private contractors and the government work force allowed to bid.

Management experts increasingly have come to believe that it is best for organizations to concentrate on their core competencies and to contract peripheral activities out to other firms for which the contracting organization's peripheral activity is a core competency. For example, there exists a successful commercial firm called Caribiner International that specializes in outsourcing conference and meeting management for large corporations.

Ford Motor Co.'s core competency isn't organizing meetings; Caribiner's is. In order to reap the benefits of outsourcing in the federal government, both industry and government must put aside traditional ideas of what is government business and what is not and embrace a whole new way of working together.

* Cut out the ideology. This is not about big government vs. small government or about whether you like government workers. For years private companies have outsourced much of their advertising and legal work. Firms that outsource not only conference management but also areas such as employee benefits management or accounts payable to commercial firms are growing in number. This is about improving the management of the public sector.

* Don't overreach. I was disturbed by the request some time ago from the state of Texas— a request that was eventually turned down by the federal government— to outsource benefits determination decisions for welfare recipients. Such decisions involve authoritative social— and ultimately moral— judgments about how we as a society treat disadvantaged individuals. Social decisions such as these should be made by the government, not employees of private firms. Overreaching only hurts the strong case for outsourcing other activities.

* Public/private competitions are inevitable. If Republicans can't be sold on the idea of excluding federal workers from competitions, industry just needs to get over it and stop fighting. Steve Goldsmith, the privatizing Republican mayor of Indianapolis, has allowed city employees to bid on outsourcing deals, and often they've won. Instead of engaging in the quixotic fight of trying to prevent government employees from competing, we need to pay serious attention to "level playing field" issues involving scoring past performance and accounting for indirect costs.

* Consider the best interests of government employees. Outsourcing a previously governmental activity to a commercial firm creates benefits for taxpayers. Those benefits, to the extent possible, should not be at the cost of existing federal workers. Contractors should be prepared to offer government employees a right of first refusal— either in the existing operation or somewhere else within the company's local activities— if they take over an in-house function. For many workers, the move to a firm that specializes in the worker's area of expertise will be a plus because internal promotion opportunities are no longer limited to the small pond of the agency's own activities.

* Follow developments in commercial-to-commercial outsourcing. Readers of the general computer press are aware that commercial information technology outsourcing— some of the big mega-contracts in which integrators take over a company's IT operations— is no bed of roses. Some customers are dissatisfied; a few contracts have even been canceled. Turning a blind eye to these problems will not enhance the credibility of would-be federal IT outsourcing vendors. Vendors should be in touch with their commercial colleagues about steps that are under way to deal with complaints and lessons learned from commercial experience. Maybe the federal government can benefit from the experience of commercial guinea pigs.

-- Kelman was the administrator of the Office of Federal Procurement Policy from 1993 to 1997. He is now Weatherhead Professor of Public Management at Harvard's Kennedy School of Government.Outsourcing is back in the news. A new bill, offered up by Rep. Steve Horn (R-Calif.), could result in a dramatic increase in the outsourcing of federal activities. Sooner or later, the federal government will go the way of private industry, and outsourcing will catch on. But the politics of the transition will be tough and contentious.