A couple of perspectives on insourcing vs outsourcing

It is probably fair to say that mankind first organized itself socially, all sharing in the benefits and burdens of group effort. And then, when specialization began, so too did the social structure begin to differentiate. It was probably about that time that arguments first began to surface over whether the group or some differentiated part of the group should perform certain functions.

That argument is alive and well today, as reflected in the ongoing US federal debate over what is a "core" or "governmental" function, amongst other issues.

Some applications of that debate are reflected in the following two articles, one from Ghana and the other from US history. These articles illustrate how the philosophy of procurement hits the road. It can be a rubbery issue.

GIVE THE STX HOUSING CONTRACT TO THE ARMED FORCES

The recent report that the ruling NDC government is seeking to build houses for the country's security forces has got everybody talking. The government according to media reports is contracting STX, a Korean firm, to build 200,000 housing units at the cost of ten billion dollars.

Nobody is saying Ghanaians will not benefit when 200, 000 housing units are built, the issue is about the cost of the contract, the terms of the contract and the fact that the government is sidelining local companies in favour of Koreans.

I am of the opinion that government should give the 1.5 billion dollars contract to the army. Throughout the world the armed forces are engaging in direct business as way to generate funds to help strengthen their tactical and strategic capabilities. Evidence of armed forces directly engaging in direct businesses abound in China, the US and Britain. For example the Defense & Foreign Affairs Journal reported in 1997 that “China's top 100 military enterprises reported profit growth for 1996 of 9.2 percent.

The advantages of the Ghana Armed Forces building its own houses are many fold. One is that any profit that STX Korea is intended to make could go to the Armed Forces which could be used to support the funds provided to them by the government through the budget. Again the armed forces know their housing problems far better than anyone else and therefore it will in order if they are allowed to design and build the houses themselves. I am sure that the Engineering Unit of the Ghana Armed Forces has the engineering capability and technical know-how to adequately and efficiently execute the housing project if given the opportunity.

Federal government once rejected outsourcing defense procurement to save money

The question of whether or not to outsource national defense activities is as old as military itself. The Constitution itself mandates that the government provide for the national defense. Interpreting just what that means has been the subject of innumerable gut-wrenching debates, public and private. What to do, how to do it and who will pay for it have been part and parcel of every defense appropriations debate since the start of the Revolution. After more than two centuries, we still have trouble delineating where the federal defense apparatus should end and the private sector begin.

Proponents of contracting, privatization, outsourcing and the like, seem to have an unshakable belief that for-profit enterprises are vastly more efficient, and therefore, more cost effective than any government-run operation. What's missing from their simplistic assessment is that the key part of any for-profit organization is the "for-profit" part. In defense contracting, profit is effectively defined as the dollar amount of private-sector efficiency that is not passed on to the government.

It's no secret that the wars in Iraq and Afghanistan have created private-sector millionaires. When it comes to national defense, the smaller government the larger the checks it must write to contractors. The only other alternative is for the government i.e. federal employees do the work themselves.

In the early years of our nation, North African pirates, and the warring superpowers of Europe, France and England, preyed upon American shipping with impunity; seizing our cargo and imprisoning our sailors. In early 1794, Congress had finally had enough and authorized outfitting a naval force capable of protecting U.S. commerce on the high seas.

The following excerpt found on the Naval Historical Center's website quotes passages from a letter sent to President George Washington by Secretary of War Henry Knox on April 15, 1794 regarding the procurement of the six frigates authorized by Congress. Knox's mix political and economic pragmatism was "immediately accepted" by the President.

"To keep labor costs down, government employees rather than by private contractors would build the ships, and construction sites would be distributed geographically in order to spread the economic benefit and win popular support. "It is just and wise to proportion . . . benefits as nearly as may be to those places or states which pay the greatest amount to its support," Knox advised. Although it might be cheaper to build the frigates successively in a single place, "a few thousand dollars in expences will be no object compared with the satisfaction a just distribution would afford."

Not only did the federal government build the ships, it built some of the finest naval vessels found anywhere in the world. Among the ships built was the USS Constitution, also known as "Old Ironsides." Over decades of service, "Old Ironsides" would score numerous victories over the British Royal Navy helping to establish the United States as a first-class power on the world's oceans. Not too shabby for a government-built ship.

The federal government and the contractors that support it are neither inherently good nor inherently bad; there are simply mirrors reflecting the cumulative quality of the decisions that create and sustain them.

COMMENT: However much competition is at the heart of procurement philosophy and practice, it is not the entire purpose of effective procurement. If it were, procurement would be simply an economic or commercial exercise. It is more than that. It is part and parcel of the larger ulterior original utility and purposes of the social needs of mankind as manifested in its political organization. And that has not remained static in any time or any place for very long.