Outsourcing is bad, but as an Indian who renewed his passport recently, I have to say the process was smooth.
The document verification/IT/software/hardware part of the Indian passport application/renewal operation is now handled by TCS. You make an appointment online - for both fast track and slow track - and arrive at the local passport center with your documents. The TCS grunts allot a token, make sure documents are in order - if they are not you are sent back to get them corrected, take your fingerprints, photo and for final verification you meet an Indian government employee. He/she either says YES, or says YES with police verification.
In my case it was the latter as my passport had some damage - usual wear and tear, but visible.
A few days later a policewoman came home after fixing an appointment over phone, verified my documents/address and in two weeks I got a fresh passport.
I was impressed by the whole process. AFAIK Indian government and TCS is doing everything right as far as passport renewal goes...it was better than getting my experience in getting a drivers license/immigration papers in Toronto/Chicago/San Francisco.
May be US government should indeed outsource the operation to TCS...if they can do a good show in an anarchic chaotic mess like India, I am sure they can do the same in US.