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Retire Today, Do the Same Job for More Pay Tomorrow

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We have heard about federal employees who retire on a Friday and come back to the office the next Monday as a contractor employee. The story often includes a mention that the retired fed is doing the same work, but for more money.

A new twist on this situation has emerged. The Department of Energy (DOE) Inspector General (IG) released an inspection report detailing prime contractor employees who retire and then go to work as a subcontractor doing the same work in the same office but at a higher salary. Sandia Corporation, a subsidiary of Lockheed Martin Corporation, manages and operates Sandia National Laboratories for the DOE. According to the report, Sandia subcontracts a good portion of the work—approximately $921 million in FY 2011. That subcontract amount indicates that Sandia is heavily reliant on its subcontractors, as it received nearly $2.4 billion in contract awards that year.

In eight cases the IG reviewed, Sandia acquired the services of former employees and paid them a higher hourly rate than the employees had received prior to retiring. The IG found that “[i]n the two instances that violated Sandia policy, the former employees were paid hourly rates of $110.00 and $95.36, whereas at the time of retirement the employees’ hourly rates were $81.44 and $68.89, respectively.” Higher rates and locked-in contracts can result in higher costs for U.S. taxpayers.

The IG stated that there were violations of Sandia’s hiring guidelines, but that it didn’t need to make any recommendations because it found no violations of federal or DOE laws or policies.

We have seen instances when the government deliberately hires contractors despite the higher cost. In fact, Chairman of the House Committee on Oversight and Government Reform, Darrell Issa (R-Calf.), recently questioned the Securities and Exchange Commission for hiring contractors at $100 to $300 an hour when SEC staff only cost $93 an hour.

POGO’s Bad Business report focused on the cost differential between federal and contractor employees, arguing that the government should conduct cost comparisons to ensure that it is hiring the most cost-efficient workforce. Long-term contracts—those lasting longer than a few years—are one of the non-cost factors that we pointed out should be considered when making hiring decisions. Simply stated, hiring public servants, and paying their salary, benefits, and pension, might be cheaper in the long run when compared to paying contractors for the same work.

The Office of Management and Budget is considering implementing cost comparisons in an effort to “to help agencies save money and drive better results.” (Comments are due by April 15, 2013.) POGO supports this effort, and hopes that more data is collected on the size and cost of the entire government workforce—all government and contractor employees.

Wasteful spending on service contracts is a genuine problem. It’s one of the reasons service contract spending exceeds $300 billion annually and has accounted for nearly 80 percent of all civilian agency contract spending in recent years. “Labor costs”—whether federal employee or contractor—should be on every white board as the government attempts to rein in spending.

By: Scott H. Amey, J.D.
General Counsel, POGO

scott amey Scott Amey is General Counsel for the Project On Government Oversight. Some of Scott's investigations center on contract oversight, human trafficking, the revolving door, and ethics issues.

Topics: Contract Oversight

Related Content: Contractor Accountability, Cost Accounting Standards

Authors: Scott H. Amey, J.D.

Submitted by GetTheFullPicture at: March 30, 2013
This is misleading - the hourly rate paid to someone for take home pay is not reflective of the cost to the labs. An regular employee expense to the lab is much lower (healthcare, medical, other benefits, etc). Contractors have much lower overhead and thus the take-home can be higher, but the cost to the labs still lower. In contrast, losing 15, 20, 30+ years of experience to not "waste" money may lead to much higher actual costs in training, knowledge transfer, loss of business, etc, etc, etc. . .
Submitted by Jim at: March 26, 2013
Nor is a full accounting of the cost of privatization done very often. Its just assumed that private enterprise is more efficient. Mr. Jaborwocki has his own unexamined assumptions. The hidden costs of privatization-- the shoddy work, confusion of lines of responsibility, poor management of projects rarely get considered after the blow to the great beast government is struck. The Iraq reconstruction boondoggle is a case in point. By all means, let's have a full accounting of the costs of government services, in both the public and private sectors.
Submitted by fastfade at: March 24, 2013
LOL...has only been going on for a few decades. I guess the Dan Glenn story is getting a bit hot.
Submitted by Amelia Canino at: March 23, 2013
Excellent article! I am very pleased to see that POGO is actively addressing this important issue! Thank you.
Submitted by Jaborwocki at: March 23, 2013
You write as if it is a proven and accepted fact that contractors "cost more" than feds. Sir, you need to get out more, and consider true overhead of feds, the lifecycle costs of having them (e.g., retirement benefits), and all of the hidden subsidies to the employees of Federal agencies. POGO has never done that, but you act as if you have in some convincing way. Yes, I know federal cost accounting is bad and does not let you see the total cost of hiring/employing civil servants--but don't give up, for Goodness Sake, eh?

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