DoD Contractors Cost Nearly 3 Times More than DoD Civilians

See the inforgraphic below for all the data

Last month, the Project On Government Oversight sent a letter to government officials poking holes in the Department of Defense’s (DoD) claims that it utilizes a cost-effective workforce, and that congressional prohibitions have prevented it from implementing greater cost efficiencies. DoD’s own documents prove otherwise and support POGO’s 2011 finding that, on average, the federal government is wasting money by hiring service contractors.

POGO’s review of DoD service contracting budget and spending data found that contractor employees cost 2.94 times more than an average DoD civilian employee performing the same job. In fact, although the number of employees in both workforces is relatively balanced, spending on the workforces is not: DoD service contracts cost $253.8 billion and DoD’s civilian workforce cost $72 billion (base) or $108 (base plus overhead) in FY 2010.

Comparison of contractors to military personnel results in similar ratios, although this comparison is complicated by such cost considerations as pay, housing, subsistence, change-of-station expenses, education assistance, veteran’s benefits, tax advantages, and non-monetary benefits to military members

This new data, however, highlights the fact that the federal government is contracting out services regardless of the extra costs. Except for great work by the Army in tracking contractor labor and overhead and profits rates, there is very little interest in the government in monitoring service contract spending and assessing its relationship to overall federal hiring and spending.

Instead, policymakers are promoting federal employee hiring ceilings, pay freezes, and increased contractor compensation benchmarks. Many of those policies are based on the unfounded premise (p. 16) that contractors are cheaper. Some policymakers are more focused on the public vs. private pay gap debate, which, depending on whose studies you believe (Heritage Foundation or the Federal Salary Council), favors either side by approximately 30 percent. Meanwhile, hundreds of billions of dollars are spent each year on long-term service contracts that are wasting unknown amounts of taxpayer dollars.

The higher cost of contractors isn’t the only problem. Despite the claim that outsourcing allows the government to be flexible and cut its contractor workforce when needs change, the sequestration debate is proving that contractor jobs might be just as permanent as federal jobs. For years, the contracting industry has warned senior officials to “consider the impact on maintaining the industrial base in all sourcing decisions.”

The acceptance of outsourcing myths leaves taxpayers on the hook for a bloated contractor workforce that has largely been ignored by the government. Recently released DoD FY 2011 data shows that DoD contractor employees and service contract obligations increased from FY 2010. Preliminary 2012 data (see p. 5) shows some decline in DoD spending on contract services, as well as on civilian and military personnel, but more has to be done to ensure that the entire DoD and government workforce is sustainable. If the government is serious about reining in spending, service contract modeling and inventories desperately need improvement.

I’m not saying that we need DoD civilians for every job. Certainly, there are short-term needs and non-cost factors that should be considered when making workforce decisions. However, long-term jobs should be subject to rigorous cost comparisons prior to a contracting decision.

But don’t take my word for it—here’s DoD’s own conclusion regarding its FY 2010 service contract spending (see p. 10 or slide 6 from this DoD PowerPoint): “The savings are here. This is Total Force Manpower, but its growth has been unchallenged and often we don’t even know what is in the base.”

Scott Amey is the general counsel for the Project On Government Oversight.

Follow @SAmeyJD

Comments

[John L. Bolton, CW5 Retired, U.S. Army]

Scott,

I really do appreciate you having the courage to state this. I have been saying this for years and the crazy thing is, many of the senior military officials that I have spoken with on this subject agree. When the Department of Defense decided to move to a majority contracted force, Defense Spending went through the roof but still our congressmen, senators, and other government officials are adament that it is the most economical way to go, maybe that is because many have investments with those contractors (i.e. Halliburton Scandal). I believe that some contracted workforce is necessary but to perform small temporary mediocre task and when that task is completed, the contract should be closed. Another problem is the Contracted workforce is getting so large that now I am seeing more and more "Inherently Government" tasks are being performed by contractors regardless of the conflict of interest. Contractors are recommending expansions of contracts to increase their work force and further gouge the U.S. Taxpayer of Billions of dollars and the crazy thing about this is the approving, reviewing, and auditing officials are doing nothing to stop it. I did an analysis before I retire from the Army on a simple vehicle repair shop. My analysis was based on the midpoint soldier with 6-8 years of experience. That soldier's income was 49-56 thousand dollars per year and in the combat zone, usually work 14 to 18 hours a day with a very high production output rate. To replace that soldier with contractors would require 2 mechanics with the same level of experience, 4 mechanics helpers, 2 shop formans, and 1 maintenance supervisor, at a total cost of 2.1 Million dollars per year in the combat zone. I presented this to many senior officials who were amazed at the waste. Bottom line is it's very painful to me as a taxpayer to witness such waste and to be threatened by those very contractors when I try to do something about it. Keep pushing forward, you definitely have my support!!!

[da]

I see nothing in your piece that addresses contractors who are not doing comparable jobs to GS. there are signficant numbers of jobs that are contracted out because GS pay is too low to attract certain specialties. these are among the highest paid contractors, and may be significantly skewing your data. you also use current year spending on GS as your total expenditure, whereas in reality, the 'tail' of retirement, healthcare, and other benefits signficantly changes that spending, while those costs are all paid (as overhead) up front with contractors. you are comparing apples and swordfish, and drawing conclusions that may be far from reality.

[Charles M. Smith]

Scott,

I appreciate your analysis which clarifies many of the issues concerning this problem. For positions where contractors substitute for government employees in offices; a situation I say drasticly increase during my career in Army contracting, the costs are as you point out. When you add the risk of exposing government data by contractors (which I saw first hand), the conflicts of interest and the contracting out of inherently governmental work, we should be actively contracting in these positions. Of course there is no effective lobby for increasing the government workforce while reducing contractors in an equilavent manner.

In my book, War For Profit, I deal with the specific situation of contracting out soldier support services during operations such as Iraq and Afghanistan. Here the contractor was able to use third country citizens for much of the work, at very low labor rates. This led the CBO to find that such contracting out was cheaper than organic (soldier) support. I correct some of the CBO data and question one of their main assumptions, that the Army would need three units for every contractor unit, due to rotational issues. Of course the Army did not follow the three unit rotational policy in Iraq, not would they in the future.

The CBO study did not address any of the increased risks of using contractors on the battlefield, which I do. It is clear to me that this policy, implemented mainly in the giant LOGCAP contract, is not cost effective for the Army.

[Bill Combs]

Let's just call these "contractors" what they are: Legalized war profiteers. These outrageous expenditures to Halliburton, Brown Root and others are at least immoral, and at best bloated.

[Scott Amey]

Thanks for all of the comments! This issue is really important to government operations and cost-cutting efforts. The calculation for cost of civilian personnel includes a 50% charge for overhead, which is higher than what is required to be added pursuant to A-76 (http://www.whitehouse.gov/omb/circulars_a076_a76_incl_tech_correction/#c). Readers should also be aware that we didn't add in any government overhead that it incurs to award, administer, and oversee contracts or to have contractors work at federal facilities and use government equipment (http://www.hsgac.senate.gov/download/?id=0D3022EE-FB76-44A8-B823-8EA058BB30BC). As many of you stated, the work to get actual costs is very difficult and that is the primary reason why POGO is asking for a GAO study (http://www.pogoarchives.org/m/co/enclosure4-20121017.pdf) to determine a new and improved cost model to ensure that government and contractor costs are true reflections of lifetime costs and that those costs are considered prior to any workforce decision. Although lifting the A-76 moratorium may assist efforts to compare costs, the vast majority of services fall outside of that process. As a result we are asking for the government to go further in modeling and obtaining helpful contractor costs data in service contract inventories. In essence, it would bring an A-76-type competition to all long-term government service contract work. I have told many policymakers that it’s similar to using a mortgage calculator prior to buying a house -- the government should have a sense of the true costs of hiring government and contractor personnel prior to making any workforce decisions. That also requires that the government be more flexible to hiring either workforce, which will require a lifting of government full-time equivalent hiring ceilings.

[Dfens]

What we have lost by hiring government contractors to do inherently government functions is far far more than 3 times the salary. Back when NASA designed its own rockets we could put men on the Moon, and before anyone starts the whining about funding levels, NASA right now receives the same average funding it got during the Apollo program. The main difference being the fact that now NASA can't even put a man in low Earth orbit. They have to rent a ride on a ex-Soviet Union rocket to do that. They haven't been able to land a man on the Moon for the last 40 years!

You can thank a government contractor for that. The Rockwell (now Boeing) space shuttle was supposed to be able to lift 150,000 lbs to low Earth Orbit. That was an amount considered sufficient to mount a short term mission to the Moon like the Saturn V could. Instead the combination of the fact that the shuttle could only actually put 40,000 lbs in low Earth orbit, combined with the huge expense and time it took to refurbish the shuttle between flights (it cost more to launch the shuttle than the Saturn V), combined with the lack of reliability of the shuttle (it blew up about 2 times in 100 missions, similar to all other rockets despite the huge expense of being "man rated" by NASA), kept our manned exploration of the universe from exceeding 150 miles from the surface limit for 3 decades! How do you put a price tag on that kind of failure?

[Jack]

Why does the military hire so many civilian workers when we have troops doing nothing but sitting in the sun. Whatever happened to KP duty and other functions our troops use to do to fill their time?

[Chris]

So typical of our properly bought Washington Industrial War Complex... you say B.S. long enough and people overlook the truths and ramifications of the truth. We need to have regulators investigate, expose truths and contracts and the people who performed them on the "Peoples" behalf so we can dismiss them, prosecute them, and run them out of this country if necessary. Is there anything different between a clear case of small scale fraud and this other than scale? I know and think not.

[Michael MacPherson]

Thing is I don't know who, in the government is benefiting the most from donations from Military Government Contractors. There in lays the problem, there is a culture of bribes and payoffs existing between the government and the Military Industrial Complex, too much money is being spent on military war machines that we either do not need or are proven a waste of taxpayer money because the military hardware does not work as expected or is too costly to be beneficial.

The disinformation, propaganda and fear tactics that Politicians are using, who have been bought and paid for by the Military Industrial complex is getting old fast, I am getting sick and tired of listening to these Politicians show how little they care about the tax payers money, or should I say their private piggy bank.

I am also getting sick of hearing the lies that our military will be weak if money is getting cut from the pentagon. The cuts in question are to stop the Military Industrial Complex from over charging the taxpayers in the Billions of dollars.

The Military industrial Machine in this country has a lot of power. This country is in the business of empire building, huge amounts of taxpayer money, in the Billions of dollars is being used for secrecy and funding the Military Industrial Complex. This is why the Pentagon is spending Millions of tax payer dollars just for propaganda, lies and disinformation to brain wash the Tax payers into thinking a reduced Military Budget will mean a weaker Military. What a reduced Military Budget means is, the Military Contractors will not be over paid.

[Coralie Farlee]

Well, we (sociologists, organizational management people) have studied this for years and did tell Rumsfeld when he DECLARED that there would be savings. Also, those of us who have worked IN government know that: there are extensive costs to developing the RFPs, reviewing proposals, administering the contracts; AND there is always LOSS OF CONTROL, lack of accountability, and loss of institutional memory. It's NOT more efficient, and definitely NOT more effective. The US should be putting the resources into keeping the US Government running smoothly and effectively; contracting out does NOT accomplish either.

[Ken Larson]

Revisions to OMB Circular A-76 during the Bush administration were designed to conduct competition between public and private sectors for performance of services. The circular is now under Congressional Moratorium:

http://www.fas.org/sgp/crs/misc/R40854.pdf

As Valerie Bailey Grasso of the Congressional Research Service notes in the above report,

"The current moratorium on A-76 competitions is tied to the debate over Circular A-76 policy, which can be viewed within a larger debate over the role of the federal government, and over what functions the federal government should perform versus what functions the private sector should perform.

While it is difficult to generalize the range of views and opinions over the application of the A-76, it is generally the case that federal employees and labor organizations believe that A-76 is unfairly slanted in favor of the private sector, while private sector contractors
generally believe that federal government employees have an unfair advantage in A-76
competitions.

Some proponents of the A-76 policy view it as a necessary mechanism for gaining inefficiencies in federal operations; on the other hand, some opponents view A-76 as adversarial,expensive, and inefficient."

Is the A-76 policy a viable tool to work the impending "Sequestration" issues for the upcoming fiscal year and reduce the cost of government? What is your view?

[Al Stearns]

This is the result of Republican control. I saw it clearly when I was a civilian employee of the Defense Dept. during the Vietnam war. We overhauled all of the Army helicopters at ARADMAC in Corpus Christi. When Richard Nixon succeeded LBJ we began losing contracts to private contrators, one after another until layoffs began to decimate the work force. I was on "Management Engineering Cost Control Committe" and I saw the figres. We were doing the job for way less than the contractor was charging the taxpayers. But they got the contracts as soon as the Republican administration took over.

[Downhill Facer]

I have renewed acquaintance with your past calculations and the purported new comparative
data. It is good to see that you add a hefty overhead load to the Fed salaries, but that is not nearly enough. You don't capture the physical facilities in all their costly glory, nor all of the stupendous indirects, e.g., a sliver of OPM--and many other "slivers," on each civil service slot.
On the contractor side, you can't possibly get an accurate figure unless you can unbundle all the fixed price contracts (you can't and the FAR says that is completely kosher) nor infer anything like accurate numbers under T&M and other labor-rate contracts. It is sad that remains a research impossibility, but the Congress, OMB, and many special interests make it so.
So, POGO seems to be posturing a somewhat popular, but unfounded claim. I understand that you have done that before. As an occasional reader and admirer of some of your products, I suggest you tamp down or withhold your assertions until you can get this right. I am not asking for great precision, but at least have enough credibility (in terms of government cost accounting, economics, etc.) to be directionally correct.
BTW, the easiest thing you can do to test the directionally correct issue is to ensure you capture all the uncultured government indirect costs. That is much easier than trying to ferret contractor costs, that, because of rules created by Federal employees, are simply unfathomable.

[Dave Kisor]

When I was in the Forest Service, we had to prepare to cooperate with private contractors who wanted to "compete" for our jobs simply because they said they could do it for less. We were supposed to provide them with an accurate job description since they didn't know what we did. I've since asked various members of congress how much OMB Circular A-76 has saved us, but have never received an answer. The joke is A-76 places an open season on any position that isn't inherently governmental, but nothing is inherently governmental, as they all have analogs in non government. I call A-76 the great government giveaway.