The Defense Logistics Agency doesn’t just interact with the defense industrial base; DLA is completely reliant on the services the base provides. This dependence stems from the federal government’s longstanding policy not to compete with taxpayers. As mandated by law and governed by Office of Management and Budget Circular A-76, DLA performs functions that are inherently governmental and relies on free enterprise for the rest.
OMB Circular A-76 defines inherently governmental functions as intimately related to the public interest. If an activity doesn’t concern the sovereignty, monetary transactions or property of the United States, it should be competed with civilian companies by procedures outlined in the circular. While simple in concept, this policy is frequently viewed through defense reform lenses that make it complex in application. These reforms can be split into six phases over the years based on how DLA has related to public-private competitions.
A reliance on civilian companies resulted in DLA paying little heed to OMB Circular A-76 in its first phase from 1961 to 1981. Agency leaders weren’t ignoring rules; instead, they thought the circular didn’t apply. Caspar Weinberger forced them to reexamine this assumption after becoming President Ronald Reagan’s first defense secretary. The agency entered the second phase of its relationship with the circular by considering 100 minor missions. Out of an abundance of caution, it competed only 20, most of which remained in-house.
The Defense Department paused OMB Circular A-76 after the Cold War. With President George H. W. Bush looking to shrink the military, it made no sense to outsource activities scheduled to be abolished. While government workers lost jobs in this contraction, it was due more to Defense Secretary Dick Cheney’s defense management review decisions than public-private competitions. In one example from this third phase of DLA’s relationship with the circular, DMRD 902 directed the agency to assume almost all distribution centers operated by the services. Those it didn’t assume were closed, removing 5,500 people from the federal payroll.
DLA followed these consolidations with Defense Department base realignments and closures. Allowed to sit out the 1991 BRAC due to its participation in defense management review decisions, DLA couldn’t escape the 1993 and 1995 rounds. In addition to merging supply centers, the two BRACs decreased agency distribution centers from 22 to 15, dropping the federal payroll by another 1,792 workers. Two production facilities also were eliminated. DLA’s clothing factory closed when what is now DLA Troop Support moved from southern to northern Philadelphia, and the agency’s jewel bearings plant transferred to another part of the government. Not touched were two production missions DLA still retains: assembling kits and sewing flags.
It wasn’t until well into the administration of President Bill Clinton that the Defense Department started pressuring components to reengage in public-private competitions. Agency leaders introduced DLA to the fourth phase of its OMB Circular A-76 relationship by competing a minor agency function. Unfortunately for those affected, mistakes and delays plagued this return. It took the agency four years to study 12 employees at the Bus and Taxi Service on Defense Supply Center Columbus, far exceeding the circular’s limit of 18 months. In the end, the agency unnecessarily unnerved employees, failed to realize savings and received scathing criticism from the Department of Defense Office of Inspector General.
DSCC’s Bus and Taxi Service competition began under President Clinton’s second defense secretary, William Perry. It ended under the president’s third defense secretary, William Cohen, who expanded Perry’s privatization efforts. The new secretary’s 1997 Defense Reform Initiatives Directives propelled DLA into the fifth phase of its relationship with OMB Circular A-76. Through callouts in the document, Cohen signaled that he wanted the agency to compete distribution services, disposition services, printing services, human resources services, installation support, cataloging and even parts of its acquisition portfolio. The Institute for Defense Analyses later calculated that these directives applied to 46% of agency employees.
DLA became skilled at public-private competitions in late 1990s. Deeming three distribution centers inherently governmental, the agency competed the remaining 12. It outsourced seven, one which the agency later returned to government operation by proving federal employees could operate the site more efficiently than a for-profit company.
Other DLA business lines experienced less privatization. Of 61 Defense Reutilization and Marketing Service sites, only 10 were outsourced, and those only partially so. Two other activities, the Defense Automation and Production Service and DLA Human Resources Services, were classified as “most efficient organizations,” allowing them to stay under government operation as long they achieved promised savings. DAPS, a predecessor of today’s DLA Document Services, had to agree to a 27% reduction in personnel and 33% reduction in facilities. DHRS had to promise $100 million in savings and $250 million in cost avoidance. Meanwhile, DLA convinced the Defense Department that its cataloging functions were inherently governmental.
Suggestions that DLA contract out its contracting activity crossed a line not supported by OMB Circular A-76. Similar aggressive use of public-private competitions began to attract scrutiny. Disagreements over savings led the Department of Defense Office of Inspector General, Government Accountability Office, and other watchdog organizations to write 300 reports on the circular from fiscal year 1997 to fiscal 2002. While not all negative, these reports revealed that OMB Circular A-76 discounted costs associated with running competitions, placing employees who were separated from service, and monitoring outsourced work.
Criticism turned to catastrophe under President George W. Bush’s second Pentagon boss, Robert Gates. Hospital consolidation in the national capital region combined with high numbers of wounded service members returning from the surge in Iraq overwhelmed the companies Walter Reed National Military Medical Center had hired through public-private competitions to assist soldiers and their families. While not involved in this crisis, DLA was told in 2009 to pause the OMB Circular A-76 process. Its last major outsourcing had occurred two years earlier when it contracted out installation management services at Defense Distribution San Joaquin, California.
DLA entered a sixth phase of its relationship with OMB Circular A-76 after the Walter Reed incident. Knowing the advantages and disadvantages of public-private competitions, leaders began considering the circular just one of several tools they could use to achieve savings.
In its first three decades, DLA’s leaders achieved efficiency by removing operators from logistics decision-making, expanding capital fund coverage, increasing competitive procurement, reducing items in the federal catalog, standardizing service-particular material and automating material management. Efficiency since the end of the Cold War came from the prime vendor model, which made a single company responsible for all items in a federal supply class. It also came from Business Systems Modernization, an agency-wide redesign that introduced new technology, resulted in more efficiencies through restructured supply centers, and centered acquisition professionals on outcome-oriented requirements.
While OMB Circular A-76 remains on the books today, DLA has largely shifted to less disruptive and ultimately more promising cost-saving techniques. Additive manufacturing, which relies on 3D printers, and robotic process automation, which automates repetitive tasks, potentially decreases the workforce naturally over time instead of abruptly due to outsourcing. Most work the agency contracts out today is white-collar labor well within the competencies of commercial consultancies. These contracts are cost and duration limited. Such prudence is to be expected from an agency that obtains most of its items and many of its services through contracts.
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