No savings in DOD insourcing, Reprint... It is going to Cost

Companies Can Challenge ‘Insourcing’ Decisions, Judge Rules
By Leah Nylen
May 9 (Bloomberg) -- Government vendors can challenge a federal agency’s decision to have
government employees perform work previously handled by contractors, a policy known as
insourcing, a judge ruled.
Judge Nancy B. Firestone of the U.S. Court of Federal Claims in Washington rejected the
Justice Department’s argument that decisions to insource jobs are matters of agency policy and
not subject to court review.
“Where a protester stands to lose future work for which it likely would have competed
because of” alleged errors in the review process, “the protester should have standing to challenge
the decision to insource,” Firestone said in a ruling unsealed on May 4.
The case is one of at least 11 lawsuits challenging the Obama administration’s insourcing
efforts and filed in federal courts in the last 18 months, according to the Justice Department. The
Pentagon has hired about 3,000 people through insourcing, procurement director Shay Assad
said in March.
President Barack Obama has said the government should take back more tasks that have been
outsourced to private companies, a practice that had been increasing for 30 years.
“This is a very important decision,” Jacob Pankowski, chair of the government contracts
practice group at Greenberg Traurig LLP in Washington, said in an interview. “The Court of
Federal Claims has taken jurisdiction over insourcing decisions and has declared that interested
parties have standing.”
That means “companies do have a venue to challenge government insourcing decisions,” he
said.
Support Services
Santa Barbara Applied Research, based in Ventura, California, sued the Air Force in the
Court of Federal Claims in February, arguing that a decision to insource a $99 million contract
for support services at eight bases was unfair.
Congress passed a law in 2008 requiring the Pentagon to implement guidelines on how to
determine whether to use civilian employees or contractors. Defense Department officials issued
guidance in May 2009 instructing agencies to consider converting existing contracts to jobs for
civilian personnel in cases where a cost analysis showed such a move would save money.
The Air Force notified Santa Barbara Applied Research in June that it would be insourcing
work under its contract. Lawyers for the company argued in court papers that the Air Force
incorrectly calculated the cost savings from the switch.
While ruling that Santa Barbara Applied Research has the right to sue, Firestone rejected the
company’s arguments in the case, finding that the Air Force’s analysis of the cost savings was
reasonable because the agency followed the Defense Department’s guidelines on insourcing.
Paul Khoury, a partner at Wiley Rein LLP in Washington who represented Santa Barbara
Applied Research, declined to comment.
‘True Cost’
In the decision, Firestone said it was reasonable for the agency to consider only costs to the
Department of Defense rather than the federal government as a whole.
“If that stays the policy, none of the insourcing projects will accurately reflect the true cost to
the government,” said Edward Kinberg an attorney with Kinberg & Associates LLC in
Melbourne, Florida, who is representing a company in another insourcing case.
“It overstates the amount of savings from insourcing and creates the impression that more
money is being saved than is actually being saved or that there are savings where in fact there are
none,” he said in an interview.
Daniel I. Gordon, administrator for federal procurement policy at the White House Office of
Management and Budget, is drafting regulations that may define the functions that only federal
employees may perform. Final rules haven’t been issued.
Small businesses are being hurt by insourcing, according to Robert A. Burton, a partner at the
Washington law firm Venable LLP and a former federal procurement policy official.
“In my 30-year career, I have not really seen an initiative like this whereby the government is
proactively hurting small business,” Burton said in an interview. “I think it’s very easy to argue
there’s a public policy problem.”
The case is Santa Barbara Applied Research Inc. V. U.S., 11-cv-86, U.S. Court of Federal
Claims (Washington).
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