In the 1992 movie of Tom Clancy's thriller Patriot Games, Harrison Ford plays Jack Ryan, a former CIA analyst whose wife and daughter are targeted by a splinter faction of the IRA. Seeking retribution, Ryan reluctantly reenters the shadowy world based in Langley and leads the CIA's crack team of terrorism analysts on a quest for the men and women trying to kill his loved ones.
If Clancy were writing his novel today, the paths open to Ryan would have been far more numerous. Why rejoin the CIA when it would be just as easy, and even more lucrative, to sign on at one of the private intelligence analysis firms conducting a growing share of the government's "long war" against terrorism? Companies like The Analysis Corp. (TAC), BAE Systems' Global Analysis Group and DGI's Center for Intelligence Research and Analysis (CIRA) would be eager to hire someone of Ryan's caliber. He could be sitting right beside his former CIA colleagues doing the exact same work.
To a degree never before witnessed in American history, many core functions of the U.S. intelligence community are being outsourced to the private sector. Outsourcing has taken place in almost every aspect of intelligence work -- collection, counterintelligence, covert operations –- but nowhere has the recent trend been more dramatic than in the analysis that informs what the President receives on his desk every morning. "The outsourced analysis piece, particularly since 9/11, is a significant portion of the analysis that's done," said John Gannon, a former CIA Deputy Director for Intelligence and now head of BAE Systems' Global Analysis Group. "And it's growing."
Unlike the rest of the government, the intelligence community is allowed to keep its entire budget secret –- "black," in spy jargon -– so it's impossible to say exactly how much outsourcing has occurred. But some experts have speculated that at least 50% of the entire budget now flows to the private sector. Undeniably, the tentacles of the private sector have worked their way deep into the intelligence world, with thousands of the community's 15,000 analysts drawing private-sector paychecks. Private citizens are now performing critical and sensitive national security functions, like analyzing the video and audio messages of Abu Musab al-Zarqawi.
CIRA's website illustrates the range of analysis functions private companies perform:
CIRA supports a variety of national security operations such as interpersonal deception detection, undercover/clandestine operations, psychological operations and mass persuasion, ... [U]nderstanding and mitigating terrorist recruitment, threat assessment, interview and interrogation techniques, and risk communication, among others.
Interviews with dozens of experts, including current and former intelligence officials, suggest that the intelligence community is divided about outsourced intelligence analysis. There are disputes over everything from cost to quality.
The most troubling aspect, however, centers on the future of outsourcing. In less than two years, the country's reliance on the private sector for vital intelligence analysis may well become the Achilles heel of the intelligence community, and in turn, national security. By 2008, the supplemental appropriations that have funded the war in Iraq and fueled the growth of the intelligence community are expected to disappear. Many experts fear these cuts could rip through the contracting workforce, wiping them out despite their crucial role in analyzing threats to the country.
Joan Dempsey, the former Deputy Director of Central Intelligence for Community Management and currently a Vice President at Booz Allen Hamilton, warns that the intelligence community is no stranger to indiscriminate budget cuts. After the Cold War ended in the 1990s, budget cuts decimated the intelligence community's capabilities in Africa, a dire mistake given that Osama Bin Laden was residing in Sudan. If cuts come to the growing contracting community without an overarching plan in place, who knows what threat would be overlooked?
How It All Began
September 11th placed new demands on the intelligence community -- and dramatically increased the amount of analysis outsourced to the private sector. But outsourcing dates back to an earlier date and more pedestrian concerns. Early on, outsourcing existed mainly in information technology support. The CIA, however, looked more broadly at contracting out when Al Gore, in the early 1990s, decided to "reinvent government," stressing that outsourcing could be less expensive and more efficient than civil service.
Meanwhile, Dempsey said, the government decided to change the way it accounted for employee pay and benefits, allocating more responsibility to individual agencies. By effectively increasing the cost of full-time employees, this move and the rise in pay and benefits over the decade pushed the CIA into the arms of the contracting community. While the salaries paid to contractors often exceeded those of government employees, outsourcing allowed the government to duck the increasingly burdensome expense of paying benefits, an important projected savings during a time of declining intelligence budgets.
According to Dempsey, the final penny dropped in 1999 when a supplemental appropriations bill provided the first new influx of money into the intelligence community in a decade. To get this money out the door quickly, the CIA began hiring contractors to carry out a host of different functions, including intelligence analysis.
Both Dempsey and Gannon say, however, that the practice of outsourcing intelligence analysis was still at a fairly nascent stage on Sept.10, 2001.
The Rapid Expansion of Private Intelligence Analysis
After Sept. 11, Congress dramatically increased the level of funding flowing to the intelligence community. In November 2005, a CIA official accidentally revealed the intelligence budget to be $44 billion, a significant increase from the $26.6 billion budget officially reported by CIA Director George Tenet in 1997.
In a replay of the 1999 supplemental, but on a much larger scale, the intelligence community needed to put this money to work quickly to plug the gaps in its capabilities. That meant one thing: bodies. Bodies to compensate for the lack of new recruitment in the community during the 1990s.
"September 11 hit and the business model was not scalable, so they had to throw labor at it," said Michael Freidberg, a former Navy liaison to the Defense Intelligence Agency's Joint Intelligence Task Force Combating Terrorism (JITF-CT) and currently a Booz Allen Hamilton consultant to the intelligence community. At the Defense Department, he explains, "They mobilized a ton of reservists to staff their watch floors for about a year and a half, and then hired contractors to come in to replace them." In numbers, Friedberg says, "The JITF-CT increased from 80 people pre-9/11 to over 350 to 400 in a couple of years."
But without the ability to call up reservists, intelligence agencies outside of DOD had no choice but to turn to the contracting community. These contractors, proponents say, could not only fill physical gaps, but also provide the experience lacking in the overwhelmingly green class of post-9/11 recruits.
The intelligence "reform" that followed Sept. 11 added to the demand for contractors because it created duplication in the system -– which some experts decry. In May, 2006, Gannon told the Senate Judiciary Committee:
Since 9/11, Congress has consistently favored creating new "boxes" rather than fixing or eliminating the old ones -- without seriously assessing the cost to existing critical programs. ... In the effort to stand up new structures after 9/11, Congress did not baseline existing IC resources. It created new centers while plusing up rather than consolidating old ones. It unintentionally encouraged the stretching of scarce analytic resources literally to the breaking point, the dispersal of valuable expertise, and an unprecedented reliance on the contracting community for analytic staffing, workforce management, and training.
As evidence of the rapid push to use contractors for intelligence analysis, look no further than to the growth these private companies have enjoyed since Sept.11. TAC's revenue has increased fivefold, and its headcount is up proportionately. BAE Systems' Global Analysis Group, which only seriously started ramping up in the past two years, has grown 42% over that time period and has more than 500 analysts deployed to various agencies. Booz Allen Hamilton, SAIC, Centra Technology, SRA International, and ManTech International, just to name a few, have also enjoyed robust growth.
That has led to a phenomenon known as "butts in seats" -- contractors literally sit beside their public sector counterparts and perform equivalent tasks. According to Gannon, "'Butts in seats' within the analytic community... is really a post-9/11 phenomenon, for the most part." John Brennan, former acting Director of the National Counterterrorism Center (NCTC) and currently President and CEO of TAC, says that more than half of the 200 analysts at the NCTC were from the private sector while he was there. Freidberg reports his surprise at learning that the vast majority of Booz Allen's intelligence work is not classic management consulting, but simply providing "butts in seats" to the intelligence community.
Outsourced Intelligence Analysis: A Realm of Controversy
The "butts in seats" phenomenon allowed intelligence analysts to leave their government positions only to return the next day as contractors with the same responsibilities and significantly higher private sector salaries. According to one former government analyst who recently joined the private intelligence community, the salary available to him in the private sector was approximately 50% higher than the one offered by the government. Such anecdotes have sparked speculation that outsourcing of intelligence analysis is a boon to the private sector and a bane to the taxpayer.
But Brennan argues that these cost calculations are "misunderstood and misrepresented," because a salary comparison does not account for benefits expenses, which prompted outsourcing in the first place.
Mark Lowenthal, a former Assistant Director of Central Intelligence for Analysis and Production who is now President and CEO of the Intelligence & Security Academy, says that a full-time government employee is budgeted at roughly twice the stated salary, including pay and benefits. In comparison, one private contractor reports that the billing rates at his firm range from $90 to $240 per hour, with the average being about $120 per hour –- or, for a 40-hour work week, an average annual cost to the government of $240,000. Using Lowenthal’s calculation, this would equal an annual salary of $120,000, which is a significant sum on the government pay scale.
Of course, cost isn't the only aspect of outsourced intelligence analysis that is causing controversy. Even Gannon, whose business relies on "butts in seats," is deeply troubled by what the practice could mean for the quality of U.S. intelligence. His BAE Systems has more than 500 analysts deployed to various agencies, but nevertheless he proclaims: "This is a personal view, but I happen to believe analysis is the responsibility of the government, and the government is accountable for it and you can't delegate that and pass it off to contractors."
Gannon's principle concern lies with the quality of private-sector analysts. "A contractor is going to look at a government requirement and it’s going to go and find people wherever it can and get the greatest number of people at the lowest price and maximizing the profit to the business to do it,” he says. “When I was in government hiring people, I was looking for the best possible people I could get against the priorities I fully understood and the mission that I had. That is not what the private sector does. I know that from personal experience because I’ve worked on both sides of the house here.”
The supply of available analysts in the private sector is severely constrained because the government's process for granting security clearances is woefully inefficient, if not broken. DoD stopped processing new clearance applications in April 2006 after a funding dispute with the Office of Personnel Management (OPM). As a result, the private intelligence analysis market is heavily populated by former military personnel with such clearances. According to Gannon, "People are hired because they have clearances and they have basic skills and then they are herded in to take positions the government wants."
He warns that these companies "are not looking to be right or looking to ensure that they are getting access to the best information and expertise; they are looking to please a customer at the lowest common denominator."
Not everyone in the industry shares Gannon’s concerns. Brennan argues, "It's not just a question of filling the slot because the government can say 'I'm sorry, I don't like Joe or I don't like Sam.' It's a much more competitive process.”
Still, Kevin O'Connell, the Director of CIRA and the former head of RAND's intelligence division, has made the conscious decision to stay out of the "butts in seats" business by solely providing specialized research and analysis from outside the agencies. Echoing Gannon, when it comes to filling "butts in seats" he worries that "You're just looking for people at that point." O'Connell also worries about the objectivity of analysis conducted by private-sector analysts whose jobs are on the line. "It's probably derivative of my RAND days, where it was largely felt that if you had people sitting inside an agency and had your business dependent on it, it was a lot harder to be objective," he says.
Intelligence Outsourcing: All Air Speed and No Vector
Virtually everyone agrees that the analytic community will need to access the resources of the private sector in some form to meet its 21st century challenges. As Gannon notes, "The intelligence community is increasingly hampered by the fact that it doesn't have the inside expertise on the range of complex issues it has to deal with and it doesn't have the information."
Much less clear is the form this outsourcing should take and who within the intelligence community leadership is formulating a coherent policy. Even Brennan, an ardent supporter of outsourcing intelligence analysis, says that "There needs to be a more coherent framework that the contracting community can fit into from the government's perspective." He doesn't believe the government has adequately outlined how "surges" in demand would be allocated between government staff and the private sector.
In many ways, the lack of a coherent outsourcing policy for intelligence analysis should come as no great surprise. Paul Light, a public service professor at New York University, recently characterized the government's record on outsourcing as "all air speed and no vector." In other words, outsourcing is proceeding at a breakneck place without a clear direction. He adds, "It does not take much digging to find the rather ragged nature of outsourcing decisions, and the very uneven definitions of what's core and not core to an agency’s mission."
Officially, a government document called OMB Circular A-76 is supposed to guide all agencies in their use of outsourcing. But it provides little in the way of restraint. In theory, it helps define "inherently governmental" functions and stipulates that "non-inherently governmental" functions should be open to private-sector competition to achieve the lowest cost alternative. Other than management and oversight functions, the only specific intelligence activities considered "inherently governmental" are "the direction and control of intelligence and counter-intelligence operations."
However, even activities not deemed "inherently governmental" can be exempt from cost comparison "when required to assure the national defense or national intelligence security." Light believes that "a department that wishes to insulate a particular activity from the provisions of A-76 can do so, if not with complete impunity, at least with significant delaying power; an agency that wishes to push an inherently governmental function out to a contractor can also do so, arguably with even greater impunity."
The lack of a clear policy is compounded by the woeful state of government procurement. Steve Schooner, Co-Director of the Government Procurement Law Program at George Washington University Law School, feels strongly that "[T]he federal government currently lacks sufficient numbers of qualified acquisition professionals to conduct appropriate market research, properly plan acquisitions, maximize competition...administer contracts to assure quality control and guarantee contract compliance, resolve pending protests and disputes, and close out contracts." Concerns about government procurement are more acute in the intelligence realm, where all aspects of the contracting process are classified and scrutinized by very few individuals.
Outsourcing for the Wrong Reasons
Light is able to see both the positive and negative arguments for government outsourcing. "It's good where talent is entirely unavailable or the need for talent is temporary," he says. And it's "good when you have temporary pressures that you know are going to go away." In contrast, he warns, "Outsourcing is bad when it's used as an alternative to tough choices."
Among intelligence professionals, there is consensus that outsourcing is being used partly to avoid the work of rationalizing the structure of the intelligence community. For one thing, there's no plan for who is doing what. "There is so much unnecessary redundancy in the community in terms of roles and responsibilities, whether it be contractors or staff or whatever," Brennan says. "If you're able to put together some type of business architecture that allocated those roles and responsibilities first, then what you can do is say, if this is going to be the right allocation of responsibility among the different players, let's take a look at it from the standpoint of what should be done from a U.S. government staff perspective, and what should be done from a contractor perspective and how is our budget aligned accordingly."
But it's simply easier to outsource than to ask for full-time employees and actually allocate responsibility. The freedom to outsource thus breeds duplication, inhibits collaboration, and encourages reliance on the private sector without questions about whether certain critical functions should be contracted out. In the 1980s, Gannon said, "what we discovered was that having smaller numbers forced collaboration, and collaboration was a good thing. As you soon as you start throwing money at the intelligence community, not only does it lead to more contractors, it also leads to individual units thinking 'We want to get one of our own.'" So, instead of asking, "Does DIA have a better counterterrorism analyst than we do?" he said, units are motivated to get their own so they won't have to coordinate, they can get their product out faster, and can build strength in their stovepipe.
"Waste in the name of national security," Gannon says, "is still waste."
Contracting can also degrade the quality of the analysis being undertaken, Gannon says. Speaking about many of the new units, he observed: "They all started to produce stuff... but it was redundant in many ways. So you dramatically increased the volume of production... but within that volume of production, there was actually less quality analysis.”
The Dangers Ahead
The most pressing issue, what happens when the funding fueling this contracting begins to vanish, will hit the intelligence community when the Iraq supplementals disappear in 2008.
What Brennan calls "the heydays" will be over then, he says. "We're going to see some significant contractions from 2008 and beyond, depending on what happens with the election." A Congressional staffer with knowledge of the intelligence budget agrees: "The supplemental budgets are going to end in the not-too-distant future, and I can guarantee you that all that money will not appear in the annual budget request, so it seems almost a certainty that all that money will not be there in the very near-term."
That raises concerns that downsizing intelligence outsourcing will be accomplished as haphazardly as increasing it was. Contractors are likely to be the first ones to go, no matter how vital their analysis, because laying off full-time employees is a real headache for government managers. Gannon notes, "During most of the reductions done in the early '90s at the CIA, everything was done to preserve people in their jobs." Job preservation will arguably be even easier and more tempting in the current environment since there is a much larger pool of contractors to potentially cut off.
Dempsey is one of many who believe the community will first move to cut contractors and only then turn on its employees, all of it done in an indiscriminate fashion. But which one of these cuts might cause the intelligence community to lose sight of the next Bin Laden?
Perhaps Brennan made the most salient observation when he said that the outsourcing of intelligence analysis "is neither black nor white" but "needs to be watched." It's very unclear who is providing that oversight. Clearly, though, the growing practice of outsourcing intelligence analysis could itself use a bit more analysis. In fact, the security of the U.S. could depend on it. Bettors would say the government would hire a contractor to do it.
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