DOD Needs Better Cost Analysis for Insourcing: Report The Defense Department is basing its insourcing decisions on flimsy cost analysis, according to a report by the Center for Strategic and International Studies. Though DOD has projected savings of anywhere from 25% to 40% by insourcing, the CSIS report says, “neither figure appears justifiable.” The report faults DOD’s cost comparisons between public- and private-sector performance. “How can DOD claim it is saving 40% or 25% or any amount via insourcing private-sector positions if it does not know how much the newly insourced function will cost?” the researchers asked. They said there is evidence that in-house performance of some functions—such as building maintenance, printing, laundry and food service—costs substantially more than contracting for the work. In 2009 Defense Secretary Robert Gates proposed insourcing 30,000 contractor jobs over five years. But a year later he said the anticipated savings had not been realized and shifted emphasis to reducing the cost of support services. In February Army Secretary John McHugh ordered a halt to insourcing in Army components without his personal approval. CSIS said the Defense Department needs a mandatory procedure for comparing costs, starting with a detailed statement of work and including the full cost of the government’s overhead. But the researchers acknowledged that there has never been an accepted definition of overhead costs. “Given differences in accounting systems between public and private service providers, as well as the problems inherent in allocating joint overhead costs and estimating the cost of risk, it may often be impossible for even the most expert and objective observer to compare in-house and contractor costs with any useful degree of accuracy,” the report says. The report said insourcing is valuable for inherently governmental functions and for areas where DOD needs to strengthen its managerial or technical capability. “However, it is not clear that insourcing can provide large budgetary savings,” it says.