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ICASS and Economies of Scale

Michael Tasselmyer
January 17, 2013

In 1997, the U.S. government established the International Cooperative Administrative Support Services (ICASS) system to offer administrative support to federal agencies with employees stationed overseas. Funded at over $2 billion in fiscal year 2011, ICASS provides a wide variety of services, ranging from vehicle maintenance to furniture supply and upkeep, for nearly 23,500 federal employees in more than 40 agencies stationed at over 250 embassies, consulates, and offices around the world. ICASS is a cost-sharing system, in which participating agencies contribute funds relative to the costs they incur by using the system.

However, participating agencies aren't always keen on utilizing the services that ICASS offers: from 2005 to 2011, 13 agencies decreased their participation by more than 10 percent each. A 2012 report from the Government Accountability Office (GAO) attempted to find out why.

GAO found that nearly all participating agencies decline some level of support from ICASS and instead find alternative means of providing select services. For example, many agencies prefer to manage their own vehicle fleets rather than pay for ICASS support, often citing in a GAO-conducted survey that they had concerns about the cost and quality of ICASS services. In fact, 11 of the 56 respondents in that survey who indicated that they did not use ICASS vehicle support said that their departments’ missions simply could not be carried out if they had to rely on ICASS vehicular services.

In December 2012, Senator Daniel Akaka (D-HI) introduced S. 3676, the Reducing Duplication Overseas Act. That legislation would have required government agencies to obtain administrative support from ICASS unless they could demonstrate significant cost or efficiency advantages from other providers. Specifically, the bill would apply to vehicle and furniture services.

In theory, with higher participation rates, ICASS could purchase more administrative services in bulk, and therefore at lower costs per unit - a concept economists refer to as "economies of scale." By consolidating government support services, ICASS can purchase them more efficiently, and cut down on extraneous costs such as paying for separate warehouses, more individualized workloads, and convoluted inventory tracking.

GAO found that if ICASS participation increased by 10 percent, per-unit costs for various services affected by Akaka's bill could decrease by 5 to 8 percent.

If federal agencies are going to opt out of the ICASS system, they should document and show that the alternatives they employ are justified. They should make the case that they are either saving money or cannot meet their objective with existing services. This data could, in turn, be used to streamline and improve ICASS.

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