DoD’s Contracting Initiative—a Rational Business Decision or a Roll of the dice?

April 26, 2019

This is the fourth in a series of op-eds that IAM is running to shed additional light on problems associated with privatizing the household goods program to a single source contractor.

The Risks of a Monopoly Managing the DOD Personal

The proposed USTRANSCOM initiative to privatize the DoD household moving program under a single provider is filled with significant risk for all of the stakeholders. The Department of Defense, the household goods moving industry, the American taxpayers—and especially the military service members and their families—all face the possibility of being negatively impacted by this effort.

DoD has not taken sufficient time to determine what a move toward contracting their entire household goods program to a single entity will cost in terms of taxpayer dollars, or what the potential second- and third-order effects of such a dramatic change may be on the readiness of their personnel. How can such a dynamic change in the way a nearly $2.5 Billion program will be managed not undergo any type of full-scale analysis regarding cost, potential effectiveness or impact on service members?

The DoD household goods moving program is estimated to comprise almost 15-20% of the entire global moving marketplace. It is not a segment of the industry; it is a market unto itself. Such a significant change in the DoD market is bound to have a ripple effect across all aspects of the industry and potentially have a negative effect on the total moving industry as we know it.

It's also important to remember that the very best and highest rated agents and carriers will be the ones making their decisions on how to employ their warehouses, trucks, and labor. Even though they are the best, there is absolutely no certainty that the new privatized single source contractor will want to use them at all. In fact, those excellent providers of service at the curb, being the most well-run, are probably the ones that are actually the most likely to diversify their business in another direction as a result of this uncertainty.

DoD’s current outsourcing timeline shows a solicitation being issued in June of 2019 with a contract award in January of 2020. Implementation of the contract is scheduled to begin in October of that same year. Why such a rush toward an untested implementation? What are the current industry participants—900 approved Transportation Service Providers and the nearly 2000 agents that support them—supposed to do in the run up to the new contract? USTRANSCOM is asking those service providers to continue to support them during the next two Peak Seasons (2019 and 2020) but without any certainty that they will be able to continue to participate in the program beyond the contract award.

How can a business be expected to continue their support in that type of environment? How can a business continue to operate with such an uncertain future? How can a business owner be expected to invest in their company when there is no certainty regarding what the future holds for them? How can DoD continue to ask its entire support system to persevere in this type of unstable environment? One could easily envision service providers starting to divert their resources to other market segments, after which the capacity currently available to DoD could decline significantly before the new program ever starts.

USTRANSCOM seems to be turning a blind eye to this reality. One of the stated goals of the contracting effort is to INCREASE capacity participating in the DoD household goods program. How is that at all possible? In the uncertain business environment faced by industry over the next few years, companies will be forced to look outside of the current program to find alternatives that will ensure their viability. There is no question that this instability will reduce capacity in the interim leading up to contract implementation. Once that capacity is lost, what leads DoD to believe that capacity will ever be recovered, let alone increase?

There is significant concern within the industry that during the transition period between the current Defense Personal Property Program (DP3) and the new contract implementation, uncertainty will lead to financial instability within the industry. Underlying service providers worry that this instability will have a detrimental effect on the “at the curb” service received by service members, leading in turn to a significant degradation in service. Once again, one of USTRANSCOM’s stated goals for the contracting initiative is to improve customer satisfaction with the move process. It is likely that the transition period will lead to a reduction in the quality of the service and, once again, what guarantee is there that the service levels will ever return to current levels in the future contracted environment?

The risk associated with dismantling the current DoD household goods program in order to implement a totally untested, unevaluated, sole-source contract is enormous. No one knows how much it will cost. Industry experts are concerned that the transition will reduce capacity rather than achieve the stated goal of increasing capacity available to DoD; with a reduction in capacity, the DoD goal of increased customer satisfaction is unachievable. DoD’s apparent determination to move down this very dangerous path seems inconceivable. It puts the entire moving industry and DoD service members in an untenable situation.

USTRANSCOM needs to take a step back, withdraw this risky initiative, and work closely with industry to find solutions within the current framework to make the program better for all of its stakeholders.