By NEIL GORDON and PAUL CHASSY
When it comes to the use and oversight of contractors, the Senate and White House haven't been seeing eye-to-eye lately.
Sen. Dick Durbin (D-IL) would like to clamp down on the use of contractors to perform "functions that are closely associated with inherently governmental functions" and require agencies to collect data to help better determine the actual cost of contractors.
Inherently governmental functions are functions that must be performed by federal government employees, not contractors. These functions include conducting criminal investigations, commanding military forces, determining agency policies and budgets, and awarding and administering contracts. The Federal Acquisition Regulation (FAR) also recognizes a category of functions not considered inherently governmental but which “may approach” being inherently governmental in certain circumstances. Typically, these are functions that support the performance of inherently governmental functions. The government may contract out these functions, but with extreme caution to ensure this line is not crossed.
Durbin included a provision in the fiscal year 2012 Financial Services and General Government Appropriations Act (S. 1573) that would require agencies to ensure that “contracts exclude to the maximum extent practicable functions that are closely associated with inherently governmental functions.” The proposal would replace Section 743(e)(2)(B) of the 2010 Consolidated Appropriations Act which requires agencies give “special management attention” to functions closely associated with inherently governmental functions.
The Obama administration is worried this revision would undercut current policy. As the Office of Management and Budget (OMB) stated recently in this statement of administration policy, contractors should be allowed to perform work closely associated with inherently governmental functions “as long as the agency is giving adequate management attention to ensure contractors are not impinging on the agency’s inherently governmental responsibilities.”
Dan Gordon, administrator of the Office of Federal Procurement Policy (OFPP) at OMB, expressed the White House’s concerns with the Senate proposal to POGO. “This approach would be inconsistent with our policy letter,” he told POGO. “It would be telling agencies to go off and hire a lot of federal employees, and agencies are not in a position to do that.”
You might think Gordon is making a mountain out of molehill – unless you knew the backstory on this particular issue. The outsourcing of government services to contractors is an issue that has been hotly debated since the founding of the country. (For those interested, this Congressional Research Service report provides a good history.) More recently, the Obama administration has been struggling to formulate policies to help the agencies determine when it is appropriate to outsource.
Finally, in September, OFPP issued a final policy letter. The new policy provides a standardized definition of inherently governmental function and explains how agencies must manage two other categories of functions that contractors are allowed to perform: functions that are closely associated with inherently governmental functions and critical functions. As to the former, the policy requires agencies to give “special consideration” to using government employees. If contractors are used to perform such work, agencies must “give special management attention to contractors’ activities to guard against their expansion into inherently governmental functions.” Obviously, the administration is not ready to abandon this particular guideline just yet judging from its strident opposition to the Senate provision.
The administration also opposes a provision in the Senate appropriations bill that would require agencies to collect cost data from contractors in order to better determine the government’s reliance on contractors. The 2010 Consolidated Appropriations Act also contains a provision requiring the executive agencies to submit annual inventories of their use of service contractors. Inventories must include the number and work location of contractor and subcontractor employees, expressed as full-time equivalents for direct labor, compensated under the contract. The new provision would require agencies to also use “direct labor hours and associated cost data collected from contractors.” The White House opposes this new requirement as being too burdensome for contractors.
POGO knows first-hand the futility of service contract inventories (SCIs) as a source of useful data for evaluating the costs of having service contractors perform government functions as compared with the costs of having federal employees perform those same functions. One of the critical purposes for generating SCIs is to provide agency decision-makers with the data necessary for determining whether service contracts were actually saving the government the billions of dollars they assumed they would. However, POGO’s assessment of these SCIs is that they are not worth the paper they are printed on if they are to make possible these critical determinations of cost savings versus excessive cost expenditures.
In September, POGO issued its Bad Business report, which documented that service contracts were generating excessive cost expenditures for the federal government in excess of 83 percent above what it would cost if the work was performed by government employees. Obviously, there are service contracts that are necessary to acquire unique expertise available only in the private sector, but the vast majority of service contracts are for services that could be provided by equally competent federal employees at significantly lower costs if two conditions are satisfied:
(1) Congress authorizes federal agencies to have a sufficient number of qualified government employees (a condition Congress continually fails to satisfy, with the result that agencies are obligated to contract for services they cannot staff); and
(2) Agencies have the data necessary to evaluate whether savings are being achieved by having services performed by contractors.
SCIs are a critical source for satisfying this second condition, but they have failed to do so. That is why the Senate added a provision to the bill mandating that SCIs include “direct labor hours and associated cost data.” Only with such data will it be possible to accurately assess the true costs of contractor employee labor, as distinct from contractor overhead, administrative costs, and profits. With those distinctions clearly illuminated, it will be possible for agencies to compare contractors’ labor costs with federal employee labor costs, as well as compare contractor overhead and other costs with agency overhead and other costs. It will then be possible to make fully informed, rational determinations of which service contracts should be considered for cancellation and the work transferred to federal employees.
The administration’s opposition to these provisions is surprising. The cost data provision alone could generate potentially hundreds of billions of dollars in savings over the next ten years, the same time frame that was under review by the Congressional Supercommittee in its mission to reduce the deficit, and the administration itself is committed to finding $40 billion in annual contract savings (a commitment a recent Government Accountability Office (GAO) report had difficulty verifying). It’s about time for the White House to follow through on its promises to stop the widespread use of contractors to perform inherently governmental functions (as documented in this GAO report) and to save taxpayers billions of dollars by ending unnecessary and wasteful service contracts.
Neil Gordon and Paul Chassy are POGO investigators.