How logistics outsourcing is reshaping DLA’s relationship with OMB Circular A-76

The Defense Logistics Agency has largely moved away from large-scale public‑private competitions under OMB Circular A‑76 after decades of shifting policy, opting instead for targeted contracting and new technologies to drive efficiency, according to a historical review the agency published in its June 2026 edition of Loglines.

OMB Circular A‑76 lays out how federal agencies decide whether recurring commercial work should stay in government or be competed with the private sector. DLA’s relationship with the policy has unfolded in six phases since the early 1960s, reflecting broader defense reforms and changing political priorities.

From its founding through 1981, DLA assumed the circular did not apply because of its broad reliance on private industry. That changed when Caspar Weinberger, President Ronald Reagan’s first defense secretary, pushed a reassessment. The agency examined 100 small functions and competed 20 of them, mostly retaining those activities in house.

After the Cold War, the Defense Department paused A‑76 competitions amid force reductions under President George H. W. Bush. Workforce cuts at DLA were largely tied to then‑Defense Secretary Dick Cheney’s management reviews rather than outsourcing. One directive, DMRD 902, shifted most of the services’ distribution centers to DLA and closed others, removing 5,500 federal positions. Subsequent rounds of base realignment and closure in 1993 and 1995 further consolidated the enterprise, reducing distribution centers from 22 to 15 and trimming another 1,792 jobs. DLA’s clothing factory closed during a move to northern Philadelphia, and its jewel bearings plant was transferred to another government entity. The agency retained two production missions: assembling kits and sewing flags.

Pressure to reengage A‑76 returned in the late Clinton years. DLA’s first foray back—a study of the Bus and Taxi Service at Defense Supply Center Columbus—stretched to four years to examine 12 positions, far beyond the circular’s 18‑month limit, failed to deliver savings, and drew harsh criticism from the Pentagon’s inspector general.

Momentum accelerated under Defense Secretary William Cohen’s 1997 reform directives, which called out areas such as distribution, disposition, printing, human resources, installation support, cataloging and portions of acquisition for potential competition. The Institute for Defense Analyses later estimated the push touched nearly half of DLA’s workforce.

By the late 1990s, DLA had become proficient at running competitions. Of 15 distribution centers, three were deemed inherently governmental and 12 were competed; seven went to contractors, and one of those later returned to government control after DLA demonstrated it could run the site more efficiently. Other business lines saw more limited privatization. Of 61 Defense Reutilization and Marketing Service locations, only 10 were partially outsourced. Defense Automation and Production Service and DLA Human Resources Services were designated most efficient organizations, staying in house while committing to aggressive savings: DAPS cut personnel by 27% and facilities by 33%, while DHRS pledged $100 million in savings and $250 million in cost avoidance. DLA also convinced the department to treat its cataloging function as inherently governmental. Proposals to outsource contracting itself were deemed inconsistent with the circular.

The scale and pace of competitions drew scrutiny. Disputes over claimed savings prompted the Pentagon inspector general, the Government Accountability Office and other watchdogs to issue about 300 reports from fiscal 1997 through 2002. Among the findings: A‑76 calculations often failed to account for the costs of conducting competitions, placing displaced employees and overseeing contracted work.

Broader concerns culminated during the George W. Bush administration, when hospital consolidation in the national capital region and a surge of wounded personnel from Iraq overwhelmed contractors supporting Walter Reed National Military Medical Center. Although DLA was not involved in that crisis, the department directed the agency in 2009 to pause A‑76 actions. DLA’s last major outsourcing before that order was a 2007 contract for installation management at Defense Distribution San Joaquin, California.

Since then, the agency has treated A‑76 as one option among many rather than a default path to savings. Earlier efficiency gains came from centralizing logistics decision‑making, expanding working capital fund coverage, sharpening competition in procurement, pruning catalog items, standardizing materials and automating management. After the Cold War, DLA leaned on the prime vendor model—assigning a single company to a federal supply class—and on a Business Systems Modernization effort that restructured supply centers and pushed acquisition staff toward outcome‑based requirements.

Today, the circular remains in effect, but DLA is prioritizing less disruptive, often technology‑driven approaches. Additive manufacturing and robotic process automation are being used to trim costs and, over time, reduce workforce needs through attrition rather than abrupt outsourcing. Most contracted work now is white‑collar support aligned with commercial consulting strengths, and those engagements are capped in cost and duration.

The agency’s review frames this gradualism as a pragmatic evolution for an enterprise that already acquires most of its items—and many of its services—through contracts, while preserving direct control where missions are inherently governmental or operational risk is highest.