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.