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The $360 Billion Gorilla in the Sequestration Debate

The Gorilla in the Room
Our Tabke Box

The debate surrounding Pentagon sequestration—the planned reductions to Pentagon spending scheduled to go into effect in March—is raging.

Secretary of Defense Leon Panetta has said the spending reductions would lead to the U.S. becoming “a second rate power.” Chairman of the House Armed Service Committee, Buck McKeon (R-Calif.), said, “It’s going to start costing lives.”

It’s difficult to believe this hyperbolic rhetoric given that, according to the Congressional Budget Office, sequestration will still leave the Pentagon with more money than it had in in 2007—a time when the U.S. was fighting two wars, and big Pentagon contractors were providing tens of thousands more jobs than they are today.

But, there’s still a more glaring omission than this, even from those intimately aware of the waste and pork-barrel projects rampant in the Pentagon’s budget, such as Senator John McCain (R-Ariz.), who last week delivered a Floor statement on the Pentagon’s “culture of inefficiency.” (He was referring to the mindset at the Pentagon to conduct business without “regard either to affordability or what our service-men and -women actually need to defend the nation.”) The gorilla in the sequestration debate is what the Pentagon spends the majority of its budget on—contractors.

Contractors are a large source of goods and services for the Pentagon. Unfortunately, the Pentagon has become increasingly over reliant on contractors, and the cost to taxpayers is immense.

Every year for the last five years the Pentagon has spent more than $360 billion purchasing goods and services from contractors. In other words, the Pentagon has, on average, been spending nearly $1 billion a day on contractors. Even if we just looked at what the Pentagon spends on service contracts, that alone is more than what it spends on troops and civilian employees combined.

Service contractors can cost, on average, 2.94 times more than an average Pentagon civilian employee performing the same job. Yet, the Pentagon has threatened to furlough every one of its nearly 800,000 civilian employees, while not taking any meaningful steps to reduce spending on service contractors. And, when civilian employees are cut or furloughed, no cost comparisons are done to ensure that the Pentagon is utilizing the most cost effective workforce.

Last week, Obama White House officials had a meeting with Pentagon contractors lobbying to stave off the Pentagon spending reductions. After the meeting, White House Press Secretary Jay Carney echoed some of the industry’s talking points about the impact on small business. The Aerospace Industries Association has claimed that 520,399 jobs will be lost as a result of Pentagon sequestration, even though the vast majority of Pentagon contract money doesn’t go to small businesses.

So, why is the Pentagon’s largest expense curiously absent from the sequestration debate?

One possible explanation is that Pentagon contractors funnel millions of dollars into U.S. politics every year. According to data from the Center for Responsive Politics, the defense industry donated more than a million dollars to President Obama’s re-election campaign, and more than $20 million to congressional campaigns during the 2012 election cycle. The industry also spent more than $100 million on lobbying in 2012.

The industry often directs its lobbying and campaign contributions to legislators responsible for Pentagon oversight. Representative McKeon, for example, received more money—$556,100 – from the industry than any other politician in the 2012 election cycle. Pentagon contractors even went so far as to contribute big money to the California State House campaign of Representative McKeon’s wife.

Another possible explanation is that the revolving door between the Pentagon and contractors is spinning feverishly. Citizens for Responsibility and Ethics in Washington (CREW) recently reported that “70 percent of the 108 three-and-four star generals and admirals who retired between 2009 and 2011 took jobs with defense contractors or consultants. In at least a few cases, these retirees have continued to advise the Department of Defense—all while on the payroll of the defense industry.”

CREW’s investigation also found that “68 percent of lobbyists for the top five defense contractors had prior public sector experience.”

President Dwight D. Eisenhower famously said, “We must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex.”

It’s not hard to imagine what Eisenhower would say of the $360 billion gorilla in the sequestration debate.

Image from Flickr user I_am_Allan.

By: Ben Freeman, Ph. D.
Investigator, POGO

ben freeman At the time of publication, Ben Freeman was an investigator for the Project On Government Oversight. Ben's work focused on national security and the influence of foreign lobbying on the U.S.

Topics: National Security

Related Content: Budget, Sequester, Wasteful Defense Spending

Authors: Ben Freeman, Ph. D.

Submitted by Glenn E. at: April 20, 2013
What's so horribly wrong with US tax dollars going into "social welfare" programs, for US citizens? It's not like they don't need it, or can't use it. And it come out of the pockets of all the US citizens, who haven't figured out how to avoid paying any taxes. If the US weren't so busy playing the role of World Police. Maybe it would have something more useful to export to the rest of the world, besides its military might. And then the US wouldn't need as many social programs. Because the country's wealth wouldn't be so concentrated into a hand full on Defense Contractors' pockets.
Submitted by Win POGO, Win at: April 8, 2013
Leave it up to you guys at POGO to want to save $300 billion a year from Defense in order to waste another $300 billion a year on social welfare programs. Sounds like a $1,000 checkup at a Miami Beach podiatrist office is the next $600 hammer. Win POGO, Win :-/
Submitted by Ralph at: February 14, 2013
Your cost calculations conveniently leave out that the value of contracting out certain tasks are that you get qualified experts to do the task, then when the contract is completed they are done and the costs end. When you require government employees to do the work, they do it and when done, well you still have the government worker on the payroll and needing to find A new assignment. You take on his/her labor costs, fringe, pension, etc forever. So if a job is say 2 years long, the math doesn't make sense to saddle the taxpayer with another lifelong expensive worker and their healthcare and retirement. Contracting it out makes total sense as the costs are closed when the contract is closed. I laugh whenever I see these apples to oranges cost comparisons done with a unrealistic broad stroke. You have to consider lifetime labor costs, not just what is going on this year or next. Otherwise your theory doesn't pass the basic math tests.
Submitted by Professional at: February 14, 2013
So, if we belive evil contractor, then we should all be contractors, no need for any civil GS folks. That would mean less funding for GOV folks, since 2008 we have only grown and continue to grow. Current adminsitration would have us all on the payroll.
Submitted by Ben Freeman at: February 14, 2013
Here's the link for just the 2012 DoD contract data - http://www.usaspending.gov/search?form_fields={%22spending_cat%22%3A[%22c%22]%2C%22fyear%22%3A[%222012%22]%2C%22dept%22%3A[%229700%22]}
Submitted by Ben Freeman at: February 14, 2013
Thanks for the comments. Ken, The link in the story shows all DoD contract obligations since 2001, not just those for 2012. If you click the timeline tab you can see spending amounts, by year, back to 2001. Thus, the figures you’re referring to are from a total contract spending amount of $3.7 trillion, not the $360 billion 2012 figure I mention. If you’d like to take a look at the contracts for just 2012 here’s the link. The contract amounts and the top contractors are as you might expect. Aerodawg, much like the original “Evil Contractor,” I don’t think you’re an evil contractor either. Your story is all too common, unfortunately. Take home pay for Pentagon contractors is sometimes not appreciably greater than that of their public sector counterparts, but the billable rate is often significantly higher. Where does that extra money go? Healthcare and retirement for sure, but as Dfens mentioned, a good chunk of that money trickles up to pay for the exorbitant salaries and total compensation packages of contractor CEO’s. In 2011 the CEO’s of the top 5 contractors received an average total compensation package of $21.5 million. And, that’s just the CEO’s. Vice Presidents routinely make seven figure salaries. A million here, a million there and pretty soon we’re talking about real money.
Submitted by Ken Adams at: February 13, 2013
Ben, I'm curious how deeply you looked at the data making up the $360 billion in annual DOD contracts. The number didn't seem right based on some Navy budget analysis I had been doing, so I decided to poke at things a little using the USASpending.gov link you provided. Of interest, none of the top 5 contract value items were awarded to the top defense contractors. Number one on the list is a $116 Billion obligation to Fluor Intercontinental for "Home Office Support" issued 8/24/2009. Number 2 is an $86.9 Billion obligation to Leo Burnett USA Incorporated on 9/20/2006 for advertising services. It appears that the actual funding to the contractors for these actions is significantly less than what's portrayed by the Total Obligation line - the modification to Fluor was about $8 million and the payment to Burnett (apparently for an Army recruiting campaign) was just over a million dollars. Certainly not anywhere the $203 billion that the database report credits to these two companies! Given that these total obligation dollars represent such a large fraction of the $360 billion annual figure you've cited, I would have expected to find some indication in the public press regarding these contract actions. In searching for news about Leo Burnett in the late 2006 archives of Google News, I noticed a NY Times article about the new "Army Strong" campaign. In that article, it was noted that the total budget for the campaign was about $1.35 billion over 5 years, and also that Leo Burnett had lost the account the prior year. I can find nothing in the public domain regarding such a large expenditure to that company; the largest I can find is a $383 million/4-year IDIQ contract for advertising support to Army recruiting (announced June 27, 2000). Such a large discrepancy between the public record and the USASpending.gov database indicates a need to dig deeper. Is USASpending double-counting contracts? How could they arrive at $87 billion dollars for this one company? Is there some funds transfer happening that was not otherwise reported? You could have a huge story here if you found that to be the case. If not, then the $360 billion per year basis for your current story is completely unsupported by facts.
Submitted by aerodawg at: February 13, 2013
Another evil contractor here, this one in engineering support. I'll put it to you like this, I know what my company charges the gov't for my time. I also know what the civil servants I work with, doing the exact same job, get paid to do that same job and invariably, what they get paid for it is greater. That's without factoring in the comparatively fat benefits package they get. I'm completely maxed out at 4 weeks of paid leave a year. Gov't employees start accruing only slightly less than that. By the time they have 15 years in, they accrue more in a single pay period than I do in an entire month. You have to look at the total employment cost and not just the pay...
Submitted by Ben Freeman at: February 13, 2013
Thanks for the comments. Believe it or not "Evil Contractor", once some of your more colorful language is parsed out, I do like what you have to say. I agree with what you said about the failings of the Pentagon bureaucracy leading to greater use of contractors, who aren’t similarly constrained. As you rightly pointed out, the government is filled with both excellent and less than stellar workers. The Pentagon contracting workforce is not that dissimilar. There are those, like you, who work tirelessly, and quickly do what others cannot. You’re obviously not “evil contractors.” You’re an indispensible part of the Pentagon workforce. We owe you, and others like you a debt of gratitude, so – thank you. Unfortunately, there are also those who do not perform to this standard of excellence, or, are doing work that is duplicative, unnecessary, or performing inherently governmental functions – this is where taxpayer money can be saved. I, too, do this job because I have family and friends with children in the military, and at Pentagon contractors. When I “get out of my office and go digging,” I work with military whistleblowers that the bureaucracy ignores. After hours I work for American Military University teaching active-duty military who couldn’t otherwise attend college classes while serving in Iraq or Afghanistan. The common thread amongst nearly all of these individuals is that they believe there’s considerable waste and inefficiency at the Pentagon and at its contractors. It’s my duty to them to expose the problems and explore solutions. And, that was my intent here. To simply ask, why isn’t the $360 billion spent on Pentagon contracting part of the sequestration debate?
Submitted by Dfens at: February 12, 2013
What Dr. Freeman doesn't mention is that as soon as any department of the pentagon hires a contractor what they get with that contractor is a rich CEO who lobbies all his pentagon buddies to expand that department so they can hire more contractors. How many voters thought the Republicans meant what they said when they claimed to be for "smaller government"? It turned out that being for "smaller government" wasn't so easy when you're backed by the CEO's of these contractor tepid body shops, and instead of less government we got more and instead of better government we got contractors who cost more and perform worse than the government employees they replaced. The United State of America I grew up in could put men on the moon and bring them safely back home due to the government employees we had designing our rockets at the time. When NASA decided to outsource their rocket design to a government contractor suddenly we went from being a nation in the forefront of lunar exploration to a nation that couldn't get beyond the same low earth orbit John Glenn reached in 1962. For 30 years we were stuck in low earth orbit until it came time to retire the shuttle, and now our only way to launch astronauts to low earth orbit is to rent a ride on an ex-Soviet Union rocket. You can than a defense contractor for that. Our great Navy once 600 ships strong when the Navy had government employees who designed their fleet now can't keep 280 rust buckets afloat, and lucky us we get to spend more on a force less than half the size while these defense contractors make record profits grazing on our tax dollars. Our Air Force used to design planes that pushed the envelopes of speed and space faster and farther every year, but now it takes them 25 years or more to field a new fighter airplane and it will probably take the entire career lifetime of an engineer to field their next new bomber. Yet again you can thank a government contractor. While these government contractors beat their chests and claim to be such good and patriotic Americans, let's take a hard look at what they've really contributed. They have helped increase our taxes and debt while making our government less efficient and less effective than it has ever been. Their patriotism has been treachery and they have served their own interests over those of the people who pay their salaries. The sooner we are rid of these wriggling maggots who infest our government the better off we will all be.
Submitted by Evil Contractor at: February 12, 2013
Dear Sir, You may or may not like what I, an "Evil Contractor", have to say; so be it. A few things you have missed on your article: 1) Furlough Federal Employee's get paid for that furlogh once they are back on the job. i.e. It's a PAID vacation. 2) The governments own UNION rules make some task impossible for their bureaucracy to do. Hence us "Evil Contractors". We can and do pick up those ohnosecond (A unmeasurable instant of time when you've realized, you've just screwed up in a most spectacular fassion.) jobs and get them done by tomorrow instead of six months from now or never. 3) As to getting rich in this industry... Where? Show me the job... Show me the numbers... They're not anywhere within my viewing range. I do this job because I have family and friends with children in the military. How about you? Got any skin in this besides your sanctimonious opinion? 4) While federal bureaucrats are snug in their beds after a gruiling 8 hours in the office, I'm still in the office at nidnight cramming to get a write up and presentaiton of findings done from a SNAFU aboard a ship on deployment that I just got back off of after a relaxing 90+ hour week. And I have to be back in the office at 0700 to brief my boss, the PMA Chief Engineer and the PMA Program Manager (A Navy Captain who is not the most forgiving person on the planet, but at least he's fair.). I have to tell them that they have another mess in their supply, repair, training and maintinence chain and I don't have the luxury of being able to wear body armor to the meeting... 5) As an "Evil Contractor" I get the jobs the bureaucracy doesn't want, day or night. 6) I'm responsible for the work I do, but have ZERO athority to get some lugnut of a bureaucrate who's set for life, do actually do his/her job. There are excelent people in the employment of the government, and then there are the trolls... The trolls usually outlast the excellent people and wind up in positions of athority where they have no business being since they are unwilling or incapable of making any decissions since they will then be held acountable. Is there too much money being spent on "Evil Contractors"... YES! But you fail especially to address the real issue: Why are WE needed at all? Why don't you write that one up? But that would mean working for a living... Wouldn't it? You'd have to get out of your office and... go digging... "An Evil Contractor" P.S. My appologies for any spelling errors.
Submitted by dufenuf at: February 12, 2013
Army PM-MRAP pays a contractor to write their acquisition documents when they have procurement analysts who should be doing that job. This came about because the woman who is the boss of that dept, is incompetent and needed to have the contractor do her work (CLSS2) now she pays this contractor to do all the her big SOWs (JLI2). How sad.

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