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Holding the Government Accountable

DOT Turns to POGO Data for Contractor Cost Corroboration

In July, the Department of Transportation (DOT) released a final rule that included data found in the Project On Government Oversight’s 2011 report, Bad Business: Billions of Taxpayer Dollars Wasted on Hiring Contractors. POGO’s report is the foundation of our ongoing efforts to get the government to compare the full costs of workers—whether federal or contractor—before making long-term human capital planning decisions. Taxpayer funds are at risk if cost comparisons are not conducted.

DOT’s new rule mandates that public transportation providers implement transit asset management (TAM) plans, which will include public bus and rail transportation asset inventories, condition assessments of inventoried assets, and a prioritized list of investments to improve the state of repair. The plans will also include performance targets based on the quality of the repair work done. The program ensures that public transportations systems operate efficiently and safely.

The DOT cost estimate for creating TAM plans across public transportation providers reveals an important finding. According to the final rule, “FTA developed a higher-cost case that assumes contractor support at costs that were roughly two times the fully loaded in-house costs [including employee benefits].” In other words, if developing the TAM plans is contracted out rather than tasked to government employees, the DOT will spend twice as many taxpayer dollars.

The DOT developed its high and low cost models in response to concern raised during the rule’s comment period that transit providers are “more likely to use contractor support to develop their TAM systems than in-house labor, and that costs would be higher in those cases.” The cost factor that was used in the models was derived from Federal Highway Administration data, which showed contractor support costs 1.5 to 1.6 times as much as in-house work, as well as from POGO’s report, which found that contractors, on average, cost 1.8 times as much as federal employees.

In our report, POGO found that the role of federal contractors has expanded to meet increasing demands for government services following reductions to the size of the federal employee workforce in recent years. In the past, contractors have come to outnumber federal workers in some agencies. Though contractors play an important role in the federal workforce by supporting numerous government functions, the significantly higher cost of hiring contractors suggests this change in the workforce has not necessarily been for the better.

Unfortunately, few federal government agencies make an effort to examine the cost of hiring contractors against the cost of employing federal employees. The lack of government interest in collecting accurate and complete data on the service contract costs as compared to overall federal hiring means there is little actionable information that can be used to hire the most appropriate and cost-efficient workforce.

For example, officials from the Department of Defense (DoD) Office of the Under Secretary of Defense for Personnel and Readiness engaged in a concerted effort to skirt legislation mandating the implementation of a software system designed to accurately track service contracts. This is particularly concerning given that in 2012, POGO found that the discrepancy between contractor and federal employee costs within the DoD was even greater than the figure originally reported in Bad Business. On average, a DoD contractor was paid almost three times more than a federal employee performing the same service.

POGO is pleased to see that the DOT recognizes that contractors can be more expensive in the long run after paying close attention to workforce cost issues, and hopes other federal agencies follow suit.