Personnel Savings in Competitively Sourced DOD Activities: Are They Real? Will They Last?

In recent years, the Department of Defense (DoD) has placed increasing faith in competitive sourcing to make its operations more efficient and effective. During fiscal years 1997 through 2005 the Pentagon expects to save $11 billion by putting tasks involving some 250,000 positions out for competitive bid. However, critics have questioned whether competitive sourcing actually produces the savings that the Pentagon expects, and whether the savings will endure over time. This study examined the personnel costs associated with several tasks that DoD put up for competitive bid between 1989 and 1996 and the methods winning bidders used to perform the tasks at the lowest cost. Most bidders accurately projected their annual personnel costs savings from competitive bidding and obtained most of these savings through techniques that allowed them to perform the work with fewer personnel. They have been able to maintain those lower personnel costs over time.