DoD Contractors Cost Nearly 3 Times More than DoD Civilians

US Government Pays Contractors Twice as Much as Civil Servants for the Same Work

Since the 1990s, the outsourcing of what were once considered to be public services has grown exponentially, while the size of the federal workforce has fallen significantly. The rationale for these deep reductions in the public sector is that private companies are more efficient. The privatizers claim that they can render the same services as civil servants for less, even after making a profit.

Pulitzer prize-winning journalist David Cay Johnston, author most recently of The Fine Print: How Big Companies Use “Plain English” to Rob You Blind, takes a skeptical look at these claims in an article for Newsweek…

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.”