Friday, December 20, 2019

Security Services - In-House or Outsourced?

For contractors employing in-house security protection, DCAA (Defense Contract Audit Agency) thinks you might be paying too much for the services provided. In guidance to its auditors, DCAA writes:
There are now a number of commercial companies that provide plant security protection services, including well-trained uniformed guards. These security service companies often provide efficient plant protection services for less than the cost of such services performed by the contractor's own security employees. Accordingly, evaluation of costs of security guards at the contractor's facilities should include a comparison between the cost of the in-house services and the cost of engaging an outside security service firm. When excessive or unreasonable costs are questioned as a result of the above cost comparison, it is the contractor's responsibility to demonstrate the reasonableness and to justify the costs.
In other words, DCAA thinks it would be cheaper to outsource security guard services then to hire and maintain in in-house security force.

Perhaps the Agency is correct but its certainly not a universal phenomenon.  We have seen a case where a contractor replaced in-house security guards with outsourced services at lower costs. However, the in-house guards were part of a collective bargaining agreement (i.e. "unionized") while the outsourced guards were not. That differential alone represented most of the savings. But all things being equal, outsourced services might be more expensive because the company providing the services need to make a profit.

We would also note that cost is not the only consideration in deciding whether to build an in-house security function or outsource it. Sometimes, contractual requirements may dictate security requirements. Also, in many cases, security personnel serve multiple roles within the company (such as fire protection or drivers).

We recommend that contractors employing in-house security personnel be prepared to demonstrate the reasonableness of the method chosen to provide those services. Without such analysis, its too easy to be "second-guessed" by a contract auditor.


  1. to demonstrate the reasonableness?

    How does one demonstrate reasonableness?

  2. "demonstrate" means to adequately support the methodology chosen.

  3. Hi Paul,
    One method to demonstrate reasonableness is to use salary surveys. These surveys when used in accordance with the FAR represents what the market considers is reasonable per the external market. WRapp

  4. Hi Paul,
    One can demonstrate reasonableness by using salary surveys in accordance with the FAR requirements. The survey data indicates what is reasonable per the external market.