SecDef wants to insource work—but doesn't understand why it was outsourced

Last month, Defense Secretary Pete Hegseth issued contracting directives meant to increase discipline and efficiency and reduce redundancy and waste. New IT and professional services contract with a value of over $10 million now require secretariat-level approval or a DOGE review. Advisory and assistance services contracts valued at over $1 million need the same—plus assurances that the work cannot be done under existing contracts or by DOD personnel.

The Secretary’s goal of reducing unnecessary, duplicative, or overly expensive contracts or contractors has merit. No one could reasonably argue that there isn’t bloat across the department, or that some contracts have not outlived their usefulness or are simply not delivering the expected value. And the focus on “outcome or performance-based” procurements makes eminent sense—although, as has been the case for 30-plus years, we too often fail to realize that success requires engagement across the spectrum of acquisition functions. 

None of that is new. Indeed, the Hegseth memos are in many ways a combination of strategies we have seen from DOGE, and they similarly reflect at least some assumptions that lack context or data. Ironically, the directives for secretariat-level reviews and insourcing initiatives largely amount to expanded versions of Obama-era policies. 

So the real question is whether these directives are likely to result in the desired outcomes. History suggests otherwise.

First, Hegseth’s directives require a ton of new work. The sheer volume of contract actions that will require DOGE review is staggering: orders of magnitudes greater than the number of “peer reviews” for contracts over $1 billion implemented during the Obama years. Those reviews, conducted by seasoned acquisition professionals, at times caused delays and, not infrequently, disputes between the component buyer and OSD.

Will these far more numerous DOGE reviews be conducted by similarly seasoned experts? Can the reviews be substantive if, as required by the Secretary's memo, they must be conducted within 48 hours of submission? The tight deadline suggests they will either be cursory or, as has too often been the case with DOGE, based on simplistic “quick looks” rather than serious analysis. If so, why do them at all?

Second, the memos are part of an effort to reduce the cost, role, and pervasiveness of systems integrators and “consultants”—hence, the restrictions on advisory and assistance contracts. But they miss the more fundamental question: why is the government so reliant on both?

Say what you will about policies of the past; the stark reality today is that, in large part, the government relies on systems integrators and advisory and assistance contractors because over the years it has hemorrhaged so much of its own internal capabilities. Early indications are that the bleeding has only been exacerbated by personnel actions of recent months.

Whether the right contractors or contracts are in place, or whether the requirements companies are being told to execute against are the right ones, is for others to decide. But at its heart, this is an issue of human capital — of the government’s continued struggles to attract and retain critical talent. Advisory and assistance contracts, almost by definition, reflect internal talent gaps. The Secretary’s expressed shock that some contractors are making more than government employees reflects a crucial misunderstanding: contractors compete for and compensate talent in a highly competitive, open marketplace. Comparing their total compensation to government salaries, particularly for the kinds of skills the government has been unable to hire, ignores that longstanding reality. So too does simply comparing compensation; total lifecycle costs paint a very different picture.

Most importantly, nothing in the memos suggests a meaningful talent strategy that will help the government reverse its talent trajectory. In fact, even as the memos talk about using or hiring internal talent, the administration has been eviscerating the civil service and eliminating programs and initiatives, like the Digital Service, designed to bring that very talent to bear. Every study produced by the Defense Business Board during my time on it, as well as scores of others, have highlighted the government’s continued lack of a contemporary talent strategy that realistically assesses the art of the possible, the investments that will be needed, or the workforce development and support that is essential. 

In short, none of what Secretary Hegseth proposes can be achieved without the kind of real, cogent, and bold human capital strategy that should actually underpin efforts of this type.

The memos are also silent on steps that we know can improve and expand the competitive marketplace for, and innovation in, the government. One is greater reliance on truly commercial buying strategies, as initially envisioned in the acquisition reforms of 30 years ago. Another is dealing with the long-known barriers to entry into the government marketplace, including arcane audit and accounting processes, policies governing intellectual property, and more fulsome data sharing across components and agencies. After all, opening the competitive aperture is the surest way to drive efficiency and effectiveness, and hold contractors accountable for performance and for innovating.

Reducing redundancies, ensuring costs are fair and reasonable and, to the extent possible, recapitalizing key internal talent, are all important goals. Unfortunately, it’s not at all clear that these new DoD directives will get us much closer to those goals. The layering of more bureaucracy rarely works. We’ve seen versions of this movie before; it’s time we learn from the lessons of the past, not just observe them.   ]]>