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White House Takes on Federal vs. Contractor Employee Costs

This week was the deadline for the public to submit written comments on the best way to compare the cost of federal employees and contractors performing the same work. Simply stated, policymakers are waking up from their 30-year slumber and finding out that the government might be wasting money because it lacks an effective way to compare the true cost of the federal and contractor workforces when making hiring and contracting decisions.

The Office of Federal Procurement Policy (OFPP) in the Office of Management and Budget (OMB) sought input at a public meeting held on March 5, 2013, and written comments to evaluate existing policies addressing cost comparisons and to propose new ones to “help agencies save money and drive better results.”

The Project On Government Oversight spoke at the public meeting and submitted a detailed written comment this week. Reiterating many of the recommendations in our Bad Business report and letters to Congress and Chairman Claire McCaskill, we raised concerns about the lack of quality service contract inventory data and reliable workforce cost comparison systems. We were not shy about pointing out that OFPP has been slow to act on this issue, sitting idle since 2009 when it first acknowledged the government was overly reliant on contractors and was not considering costs when making workforce decisions.

We recommended that OFPP ignore non-cost factors for now until all of the whining and bickering over costs has subsided. It was evident at the March public meeting that industry organizations were more interested in talking about non-cost factors such as performance, which should be considered, but only after cost factors are established. Non-cost factors are important, but if the government is genuinely trying to make ends meet, reining in service contract costs and coming up with a cost comparison model is most important at this time.

If the government is serious about comparing the true cost of the federal and contractor employees, it will have to collect and report fully burdened workforce data, especially contractor data. POGO also asked OFPP to convene an advisory panel that can ensure cost comparison modeling is done right. Regrettably, the government has sometimes created numbers out of thin air (for example, see p. 5 on the creation of the 12 percent government overhead rate).

We also recommended that OFPP establish a Director of Cost Assessment and Program Evaluation similar to that in the Defense Department to ensure compliance with the cost comparison policies.

The blended workforce has been an issue for many years. The government has struggled with contractors performing work that, by law, must be performed by federal employees. There is also the problem of contractors performing work that should be performed by federal employees, such as that of security officers abroad. And the blurred line between federal and contractor employees might be worse than previously known. A recent Office of the Director of National Intelligence (ODNI) report on security clearance determinations reported it was unable to determine the employment status (federal or contractor) of several hundred thousand personnel with confidential/secret or top secret clearances (see p. 3, footnote 2).

Comparison shopping often saves money—in the government’s case, it might save billions. The government is waking up to the situation, but I expect a heated debate from all stakeholders as millions of jobs and $307 billion in service contract awards are on the line.