04/03/2012 12:50 pm ET Updated Jun 03, 2012

What Would Sherlock Say?

If you have read my past writings over the years you will know that I am often dubious about the claims of cost-effectiveness made by the private military and security contracting industry (PMSC). That is not because they are always wrong, although they frequently are.

Rather it is simply that their advocates frequently make such claims without proof. Listening to some PMSC advocates repeating this claim, sans facts to back them up, reminds one of Tea Party types claiming that President Obama wasn't born in the United States or is a Muslim. Let's remember that assertions without evidence are just that -- assertions.

In their hearts, some PMSC advocates know this, which is why they will make arguments like this: It's not that we do it better or cheaper than regular military forces; rather it's that regular military forces have better things to do than slinging hash or doing laundry.

That, in and of itself, is a reasonable argument, even if it is not the whole truth. For example, there are other reasons why a regular military might want to keep everything in-house, even if it is not a combat function, such as unity of command.

But the real point here is that claims of cost-effectiveness should be driven by data, not by ideology. As Sherlock Holmes, said in "A Scandal in Bohemia": "It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts." And I'm not the only one who has that concern.

On March 29 there was a hearing of the Contracting Oversight Subcommittee of the Senate Homeland Security and Governmental Affairs titled "Contractors: How Much Are They Costing the Government?"

I posted the hearing transcript on my blog but let's just hit some of the highlights.

As the subcommittee chairman Sen. Claire McCaskill noted, "For too many years now the federal government has relied on assumptions and flawed studies to support those assumptions. Without good data about the cost of using contractors instead of federal employees, the government simply doesn't have the information it needs to make smart choices."

As she noted in her opening remarks, the overhead costs for contractors may not be the same as in the private sector, and this includes situations where contractor employees work alongside federal employees using government-provided equipment and infrastructure.

If you are going to objectively assess whether contractors are more or less expensive for the federal government than using federal employees, then you need to look at the costs of contractors, not just the costs within the private sector. To do so, we need hard data, not free market dogma. As Sen. McCaskill said:

For the government to make smart contracting decisions, it needs more than assumptions. If the government is going to have the best and most efficient mix of federal employees and contractors to perform its work, it needs to be able to assess the true costs of both outsourcing and "insourcing." This analysis should include overhead costs, how contractor compensation should be reimbursed and when some government functions are inherently governmental or critically impact an agency's core mission.

I should pause here to say that politically I'm an independent, but given the perennial wailing of various Republican presidential candidates about the need to shrink the size of the government, which in their view is morbidly obese, this observation by Sen. McCaskill is worth noting:

As we have spent a lot of time in Congress talking about freezing the number of federal employees and freezing the pay of federal employees, there has not been enough talk about freezing the size of the contracting force and freezing the pay of contractors. And frankly, if people understand that we're spending more money on service-related contractors in many agencies than we're spending on federal employees -- that's why I've been frustrated with these efforts because it's like saying you've got a problem, but we're only going to -- we're going to shut one eye and only look at part of it.

One underappreciated point was made by Sen.Portman who observed, "research demonstrates 65 percent of savings achieved from public-private competitions derive from the competition itself, not any intrinsic advantage of public versus private."

Another skeptical view of the promise of privatization was expressed by Sen. John Tester who said:

I don't know if there was a move some time ago to say what we're going to downsize government and we're going to replace those with contractors so we can try to dupe the American taxpayer, or if there was a real effort, that somebody thought this is really going to save money. But I can tell that when we talk about $60 billion being -- gone up in air -- and $60 billion is a lot of change; I mean that's a lot of Montana budgets for a lot of years -- we're doing something wrong, and it's unacceptable.