DFAS mulls outsourcing pay system

The Defense Finance and Accounting Service is testing the outsourcing waters

again to determine whether the private sector can more efficiently and more

frugally manage the system it uses to processes billions of dollars of payments

for military retirees and their family members.

The study will be conducted as part of a cost comparison under the Office

of Management and Budget's Circular A-76, which calls for agencies to compare

the government's cost of providing a service vs. the cost the private sector

would charge for the same service. The Defense Department leads all other

federal agencies in A-76 studies and competitions.

DFAS briefed contractors in Arlington, Va., Sept. 21 on its plans for

the payment system, dubbed the Defense Retiree and Annuitant Pay System

(DRAS). DFAS manages finances for all military branches in addition to administering

benefits accounts and checks for about 2.3 million retirees and dependents.

Up for bid is much of the back-end work related to retiree and annuity

payments such as establishing and managing accounts, providing customer

service, verifying data, processing reports and notices, making collections

from overpayments and managing automated information system changes.

DFAS would continue to issue the checks each month. Also, if DFAS officials

decide to outsource the work, any anticipated changes "would be transparent"

to the recipients, said David Brown, a contracting officer at DFAS. "Hopefully,

[the system] will improve with advances in technology and new ideas" from

the contractor, Brown said.

Interested contractors must put together proposals for the work. DFAS

officials will not say how much it currently costs to do the job.

But moving federal jobs onto contractor payrolls has proven unpopular

with federal employees. A spokes-man for the American Federation of Government

Employees said he is ready to fight to keep jobs in agencies.

"Do we want to compete? No one wants to compete. For God's sake the private

sector doesn't want to compete," said Wiley Pearson, defense policy analyst

for AFGE, AFL-CIO. "However, if the only option we have is for the work

to go uncontested out the front door, then of course we are going to contest

it."

Fair competition for the work allows federal employees to demonstrate

"what we already know — that the federal workforce is highly capable and

competitive if allowed to be. The downside is, in the process of us winning...we'll

probably lose some employees," Pearson said. "That doesn't make us happy,

but losing a few is better than losing everything."

This is the second time DFAS has launched an A-76 cost analysis for

the DRAS program after receiving an underwhelming response from contractors

last year. The first time, DFAS issued "a 3,000-page solicitation," said

Ken Beeks of Business Executives for National Security, a private, nonprofit

organization that makes recommendations on national security. "Business

leaders looked at it and said, this is nonsense — no way," he said. DFAS

subsequently pulled the solicitation and began reworking it.

When DFAS released its latest version last month, contractors were interested

but apprehensive, according to Capt. John Stensland, a Navy officer with

DFAS' office in Cleveland, which is responsible for processing retiree pay.

Some contractors felt they needed to know upfront whether they were

players for the contract, he said. As a result, DFAS sponsored a preliminary

meeting to discuss the work and let contractors pitch their capabilities.

"And we gave them an assessment of their capability to do the work," Stensland

said. Potential contractors will visit DFAS' Cleveland office on Oct. 3.

George Kolesar, division manager for Science Applications International

Corp., which is considering a bid, said there will be a great deal of interest

in the DFAS solicitation. "I guess the key point is whether the government

will actually award this if they get a reasonable bid," Kolesar said.

"There are some who believe government is not sincere," he said, and

that government issues the solicitations only because it has to. "But we

think this is going to be a real one."