Make or Buy: A Systematic Approach to Department of Defense Sourcing Decisions

Abstract

Over the last decade, Department of Defense (DoD) spending on service contracts more than doubled in constant terms, from $90 billion in 2000 to $183 billion in 2012. Policy-makers have recently attempted to reduce or even reverse this trend, in part by emphasizing instead the in-sourcing of work performed under services contracts. Over the last three years, CSIS has worked to develop a more systematic framework for guiding sourcing decisions for services contracts within the DoD, which would have broader implications for the whole universe of budget-based decisions within the DoD. Towards that purpose, this paper analyzes the stated motivations, implementation strategies, and guiding analytical underpinnings for previous outsourcing efforts and for the currently ongoing in-sourcing initiative. It then assesses current and previous DoD methodologies for guiding sourcing decisions, highlighting the individual strengths and shortcomings of these methodologies. The third section of this paper presents an analysis of public sector sourcing decisions in the wider context of economics and business management, to provide broader conceptual insights for more informed determinations on these sourcing decisions. The final section analyzes recently updated DoD cost estimating guidance and discusses drawing on object class code data as a potential data source for cost estimation.