Bad Business: Billions of Taxpayer Dollars Wasted on Hiring Contractors
Executive Summary
Based on the current public debate regarding the salary comparisons of federal and private sector employees, the Project On Government Oversight (POGO)[1] decided to take on the task of doing what others have not—comparing total annual compensation for federal and private sector employees with federal contractor billing rates in order to determine whether the current costs of federal service contracting serves the public interest.
The current debate over pay differentials largely relies on the theory that the government pays private sector compensation rates when it outsources services. This report proves otherwise: in fact, it shows that the government actually pays service contractors at rates far exceeding the cost of employing federal employees to perform comparable functions.
POGO’s study analyzed the total compensation paid to federal and private sector employees, and annual billing rates for contractor employees across 35 occupational classifications covering over 550 service activities. Our findings were shocking—POGO estimates the government pays billions more annually in taxpayer dollars to hire contractors than it would to hire federal employees to perform comparable services. Specifically, POGO’s study shows that the federal government approves service contract billing rates—deemed fair and reasonable—that pay contractors 1.83 times more than the government pays federal employees in total compensation, and more than 2 times the total compensation paid in the private sector for comparable services.
Additional key findings include:
Federal government employees were less expensive than contractors in 33 of the 35 occupational classifications POGO reviewed.
In one instance, contractor billing rates were nearly 5 times more than the full compensation paid to federal employees performing comparable services.
Private sector compensation was lower than contractor billing rates in all 35 occupational classifications we reviewed.
The federal government has failed to determine how much money it saves or wastes by outsourcing, insourcing, or retaining services, and has no system for doing so.
POGO’s investigation highlights two basic facts about outsourcing government work to contractors. First, comparing federal to private sector compensation reveals nothing about what it actually costs the government to outsource services. The only analysis that will shed light on the true costs of government is that of contractor billing rates and the full cost of employing federal employees to perform comparable work. The Commission on Wartime Contracting in Iraq and Afghanistan recently completed a fundamental study of costs, and found that, in certain contingency operations, although savings resulted from hiring local or third-country nationals, military and civilian employees cost less than hiring American contractors.
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http://www.pogo.org/our-work/reports/2011/co-gp-20110913.html
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