As IRS Scales Back Outsourcing, Union Remains Skeptical

By Stephen Barr
Thursday, November 30, 2006

It's not easy changing the way you do business, especially if you are the Internal Revenue Service and your workload surges from January to April each year as taxpayers file returns and await refunds.

"The filing season for the IRS is the Holy Grail," said David Grant, IRS director of procurement. "We don't put it in jeopardy for anything."

With that in mind, the IRS this month modified a $103 million contract, awarded six months ago, for the management of paper tax returns. The original plan to turn over the filing, storage and retrieval activities at seven IRS centers to a contractor Dec. 1 was altered so that, for now, the outsourcing will occur at just two centers.

In a statement, the IRS said the conversion was scaled back "to ensure that a sufficient number of employees with the required training and security clearances are in place to manage the files during the upcoming filing season."

Grant said the IRS and the contractor, IAP Worldwide Services, "mutually agreed" to limit the rollout of the contract to two centers, which he described as the best prepared for the workforce change. "No one has failed to perform on either side," he said.

But the National Treasury Employees Union, which represents most of the agency's rank-and-file workers, faulted the IRS for choosing to rely on a contractor rather than its employees and portrayed the agency as scrambling to reassign to other IRS jobs put in transition by the contracting decision.

"Once again the administration's zeal to send the work of the federal government to private-sector contractors is failing America's taxpayers," Colleen M. Kelley, the union president, said in a statement.

In 2003, the IRS began the process of putting the work, which had been deemed a commercial activity, up for a public-private competition. Two years later, the IRS decided that its employees had won the competition and that the work should stay in-house. Grant said the agency "then discovered some discrepancies" in the bidding process and elected to terminate the award.

After a reexamination, the IRS announced IAP as the winner. The company had filed a protest after the employees won, but Grant said "that wasn't the full driver behind our decision." The IRS projects savings of $25 million to $30 million over the five-year life of the contract.

Kelley said the IRS "has treated its own employees with disdain through this entire process," a contention rejected by Grant, who said IRS senior managers strive to ensure employees are treated fairly in job competitions.

IRS spokesman John Lipold said no IRS employees were laid off because of the decision. Some employees have moved to new jobs, and others opted to take early retirement and cash buyouts, he said.

How many IRS jobs are at issue is unclear. When the jobs were put up for bid, the union estimated that 1,458 employees filed and stored tax returns. By last year, that number had dwindled to about 840 employees. The IRS currently counts 84 permanent jobs and 367 part-time and intermittent positions in file management at the seven centers.

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