Does the Pentagon Have a Brain?

Or maybe the question is: Has the Pentagon lost its mind? That's the question asked in today's interesting -- if somewhat unsatisfying -- Wall Street Journal article (sorry subscription only), which covers the outsourcing of Pentagon functions to private companies. The concern that the Pentagon has lost its technical expertise is one that I have long shared, though I think the subject here is somewhat muddled.

The article starts off talking about Mitre, a nonprofit company that doesn't typically get a lot of press:

Mitre is one step from that: a private company with one major client, the U.S. government. Mitre does high-tech engineering and other computer work for the Pentagon, various intelligence agencies and the Department of Homeland Security -- and business is booming.

"There is no doubt that post-9/11 there is more growth than we have experienced historically," says Chief Executive Alfred Grasso. In 2006, Mitre, a nonprofit that runs three federally funded research-and-development groups, says revenues topped $1 billion for the first time.

Since the 2001 terrorist attacks and wars in Afghanistan and Iraq, the federal government's demand for complex technology has soared. But Washington often doesn't have the expertise to take on new high-tech projects, or the staff to oversee them. As a result, officials are increasingly turning to contractors, in particular the hundreds of companies in Tysons Corner and the surrounding Fairfax County that operate some of the government's most sensitive and important undertakings.

The risk of this approach, in the words of Warren Suss, a Jenkintown, Pa., consultant and expert on federal computer outsourcing, is that the government could wind up "outsourcing its brain." The number of private federal contractors has soared to 7.5 million, four times bigger than the federal civilian work force itself, according to Paul Light of New York University. Congress, meanwhile, is learning how hard it is to keep tabs on these activities.

But as the article points out: Mitre isn't a business and it is serving the purpose it was formed to serve: to provide independent and outside technical expertise to the Pentagon. If anything, there's an argument that it's preferable to give work to Mitre, formed to serve the government, than to a publicly traded company, which is serving its shareholders.

What's even more confusing is the article then turns to Booz Allen Hamilton, a company which is not quite typical of outsourcing. Booz Allen Hamilton, as the article notes, started out as a management consulting firm, not a Beltway Bandit. Moreover, Booz Allen Hamilton hasn't been a party to any of the ethics or cost-overruns that have come to light in recent years. (By the way truth in advertising: a former boss, for whom I have great respect, and a close friend both work at Booz Allen Hamilton; the article also notes that the company has done work for Dow Jones, owner of the Wall Street Journal.)

The article focuses, however, on Booz Allen's phenomenal growth in the government sector, which is true:

Booz Allen epitomizes the successful, well-connected Tysons consultant-contractor on a giant scale. Once mostly a management consultant to corporations based in New York City, Booz Allen's government business now accounts for more than 50% of its $4 billion in revenue. In 1992, it moved its headquarters to Tysons Corner.

The firm's past three CEOs have come from the government side of the firm. Dr. Shrader, with a Ph.D. in engineering and CEO since 1999, had experience on the commercial side early in his career. Since 2000, Booz Allen's revenue has doubled in size. It plans to hire 4,000 people in 2007 alone, adding to an existing work force of 18,000 people.

Booz Allen has extensive government contracts -- totaling more than $2 billion a year -- with the Pentagon, intelligence services and various civilian agencies, including the Department of Homeland Security.

It employs numerous retired military officers and former intelligence-agency chiefs. Retired Navy Admiral J. Michael McConnell, former head of the National Security Agency, was a $2 million-a-year Booz Allen executive until President Bush named him director of national intelligence in late 2006. James Woolsey, former head of the Central Intelligence Agency, is another rainmaker.

Booz Allen does so much business with the Department of Defense that it conducts brown-bag lunches for young civilian recruits dubbed "DOD 101," where it explains, among other things, the difference between the insignia of a captain and a general. Ex-military types attend a "forum" to learn the commercial ropes, as well as ways of working in less hierarchical environments.

The company argues that it can mobilize staff more quickly and cheaply than the government. As one example, Booz Allen cites its work on the Pentagon's communications network, which was damaged in the 9/11 attack. Booz Allen says it put together a special "surge" team to design what it calls "survivable telecom system." It turned the plans over to the Pentagon in just six weeks.

The reason I find the article a mixed bag is because the issue it raises is real and extremely important: outsourcing has proliferated in recent years, and there are serious concerns about whether government is really getting a good deal. Yet while it's good to raise questions about Mitre and Booz Allen Hamilton, these two outfits don't really typify the problem the article is addressing. SAIC is likely more typical of these concerns, and it was already the subject of a Vanity Fair take down.

In either case, the article raises a fundamentally good question and is well worth the read, even if I don't agree with its finer points. I think we'll be seeing more and more articles on this issue in the year to come.