While federal employee compensation has become a high-value target for congressional Republicans, the cost of federal contractors has received much less notice.
“Spending on service contractors has outpaced spending on federal employees,” said Sen. Claire McCaskill (D-Mo.) as she opened a hearing Thursday of the ad hoc subcommittee on contracting. “The cost of service contracts has increased by 44 percent over the last 10 years, from $181 billion to $324 billion, while in the same time period, spending on federal employees has increased by 34 percent, from $170 billion to $229 billion.”
McCaskill praised bipartisan legislation offered by Sens. Barbara Boxer (D-Calif.) and Charles E. Grassley (R-Iowa) that would cap the amount the federal government reimburses individual contract employees at $400,000. A bill by Rep. Paul Tonko (D-N.Y.) would limit such reimbursement to $200,000. Currently, Uncle Sam is allowed to pay $693,000 to individual contractors, who might be paid additional sums by their companies.
Service contractors do a wide range of government work, often in the same space as federal staffers, but without the same restrictions on pay.
McCaskill lamented the paucity of data comparing the costs of contractors and employees. A September report by the nonprofit Project on Government Oversight (POGO) did make some comparisons and found, McCaskill said, “that in some instances, contractors may be paid, on average, more than 1.83 times what federal employees are paid to perform the same work.”
The report, “Bad Business: Billions of Taxpayer Dollars Wasted on Hiring Contractors,” also said:
●“Federal government employees were less expensive than contractors in 33 of the 35 occupational classifications POGO reviewed.”
●“In one instance, contractor billing rates were nearly 5 times more than the full compensation paid to federal employees performing comparable services.”
●“The federal government has failed to determine how much money it saves or wastes by outsourcing, insourcing, or retaining services, and has no system for doing so.”
The Professional Services Council, a trade association representing contractors, urged caution in moving government work from the private sector to federal agencies: “While we recognize that there are clear limits to the scope of work that is appropriate for the private sector to perform for the government, it is also true that the innovation, skills, agility, and competitive spirit of the private sector are the engine that drives our economy,” Stan Soloway, the association’s president, said in a news release. “Any decision to perform work inside the government that is appropriate for the private sector to do must be accompanied by real analytical rigor. To do otherwise is contrary to both the government’s and taxpayers’ interests and the broader health of our economy.”
McCaskill cited the Department of Homeland Security’s Balanced Workforce Strategy as “a promising approach to making contracting decisions.”
One of the goals of that strategy is to “determine the proper balance of federal employees and contractors,” said Debra Tomchek, executive director of the department’s Balanced Workforce Program Management Office. The strategy follows a three-step process: identifying the work, analyzing the work and deciding who does the work.
When an office “determines that either federal employees or contractors would be suitable to perform a function, they must consider and compare the costs of each, which informs the final decision on the most cost-effective and efficient source of support,” Tomchek said.
McCaskill chided colleagues for “assuming that contractors cost less and that federal employees cost more.” She said that “doesn’t help this discussion, because frankly we don’t have any idea whether that assumption is true or false.”
She is supportive of Obama administration efforts to hold down contractor spending, although she said the Office of Management and Budget needs to provide more guidance in that area. Moira K. Mack, an agency spokeswoman, said OMB is working “expeditiously on guidance that will provide additional assistance” to agencies.
Under President Obama, Mack said, “agencies put an end to the unsustainable growth in contracting experienced during the last administration, and, for the first time in a long time, overall contract spending declined or stayed flat two years in a row.”