Government must weigh true cost of private contractors

Danielle Brian Contributor
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Over the past couple of decades, there have been calls from both parties to let the private sector handle more of the public’s business. Remember George W. Bush’s determination to cut the federal workforce in half? Or Al Gore’s “Reinventing Government” commission? Both tapped into the conventional wisdom that private sector workers generally make less money than federal employees. Common sense also dictates that marketplace competition for government contracts should drive down costs.

Recently, my organization, the Project On Government Oversight (POGO), set out to test those assumptions and see if the government really is saving money when it outsources jobs to the private sector. We quickly realized that comparing what federal workers make in salary with what their private sector peers earn doesn’t tell the whole story.

What we found was, frankly, shocking. In 33 out of 35 federal job classifications, the government paid contractors, on average, nearly twice what it compensates federal employees to do the same work.

Consider this example: POGO found that an average salary and benefits for a federal auditor costs the government $122,373 per year. By comparison, the average privately employed auditor costs $83,132. Thus, one would assume the government would be getting more bang for its buck by hiring contractors to handle government oversight. Yet, POGO’s research reveals that the average contractor bills the government a whopping $283,005 per year for the services of that single auditor! While we don’t know exactly what contractors pay auditors assigned to government duties, this billing rate doesn’t seem like a bargain.

What gives? Some of the answer is obvious: contractors must build added costs and profits into their billing rates to run a viable business. It’s also possible that the private sector auditors the contractors hire are more skilled or experienced, or were hired for a short-term assignment. Still, at what point must we draw a line — especially as the cost and length of these contracts increase year after year. When is paying two to five times as much for contractors not considered excessive? Consider that POGO only looked at job classifications where the contractor employees are stationed in a federal office, side by side with government employees, using government desks, computers, electricity, etc. How can this be a good choice for a government that is notoriously awash in red ink?

Our report sparked a fury of discussion on Capitol Hill. Sen. Claire McCaskill (D-MO) said, “When you do the math on this, it’s not working for the taxpayer.” And just days after we released the Bad Business report, Sen. Ron Johnson (R-WI) made the bold suggestion to the congressional super committee that it could save $233 billion by cutting the federal contractor workforce by 15 percent — an idea POGO has also endorsed.

Some of our critics say we are “anti-contractor.” If you actually read the report, you’ll know that we don’t argue that federal workers are more efficient or better than private contractors. What we do point out is that the federal government has bought into the myth that federal contractors and the private sector operate in the same market, and that market saves us money. Unfortunately, POGO’s study reveals that the federal government is being irresponsible by not comparing full costs prior to awarding more than $320 billion in service contracts each year.

Congress isn’t without fault. In an effort to cut the size of the federal employee workforce, it has placed hiring restrictions on agencies that result in the hiring of contractors. Simply stated, the government has leveled off the size of the federal workforce while dramatically increasing the overall size of the total government workforce. But at what cost? The government doesn’t know because it never took the time to study the cost of supplementing federal workers for contractors, and now it is often placed in a position where the market advantage is all on the contractors’ side.

This is no time for the federal government to be paying above-market rates for handling the public’s business. Congress should insist that federal agencies compare the actual costs of every contracted hire with the cost of hiring or retaining a public servant.

Under such a mandate, Sen Johnson’s goal of a 15 percent cut in the contracting budget might be remarkably painless to achieve.

Danielle Brian is the executive director of the Project On Government Oversight.