The latest fad for cutting federal government spending is slashing the number of private-sector contractors. You remember, the government contractors who were hired because theyd be more efficient than using the governments own workers to do the same jobs.
It turns out that the latest studies show private contractors often end up costing more than government employees for the same work. But will switching out one set of workers for another actually cut spending? Not likely.
The federal government now spends about $320 billion a year on service contracts, or about 10 percent of total federal spending, according to the nonpartisan Project on Government Oversight (POGO).
One recent study by the independent watchdog group concluded that across the board, in a wide range of work categories, contractors cost taxpayers more than government employees. For 35 occupational classifications, covering more than 550 service activities, POGOs analysis showed that contractors made twice as much as federal employees doing the same work. For example, the typical government computer engineer earns $136,456 in total compensation (salary and benefits) while the contractor bills Uncle Sam $268,653.
The government could save money and reduce spending by cutting back on contractors and doing more work in-house. Indeed, the Pentagons recent report, Defense Budget Priorities and Choices, intended to guide reductions in defense spending, lists reductions in contract services as one of several ways it intends to save $60 billion during the next five fiscal years.
To be sure, if the federal government didnt spend as much money contracting with private companies, nonprofits and nongovernmental organizations (NGOs) to provide certain services, at least some savings might be possible.
But not necessarilybecause both bloated armies of contractors and legions of federal government workers are a symptom of the problem, not the cause. That problem is a government that tries to do too much.
Contract services exist because the government has created a myriad of missions for itself and needs to support those missions. The term for this phenomenon is mission creep. The constant expansion of these missions has fueled both the growth of government and of contracting.
Reducing or eliminating contract services doesnt change the dynamics of the situation if all the jobs still need to be done.
Even assuming that the government could hire employees to perform the same functions as private contractors, the savings are not likely to be as significant as the POGO study concludes, given several other recent studies showing that federal employees earn more than their counterparts in the private sector when total costsincluding salaries, overhead (especially facilities, which POGO did not account for), and other benefitsare considered.
For example, in 2009 the Department of Defense (DOD) cut 33,000 contractor positions and created 16,000 new civilian government jobs to replace them. Secretary of Defense Robert M. Gates expected savings in the neighborhood of 40 percent; the actual number was more like 25 percent. Its also important to remember that federal government jobs are relatively permanent, while service contracts can be terminated or not renewed.
That is not to say that the federal government cant (or shouldnt) save money and reduce spending by cutting back on contractors. But just cutting contractorsespecially mandated percentage cuts, such as the formulaic 10 percent per year efficiency cuts DOD plans over the next three yearsisnt the way to do it.
If we want to reduce government spending and, in turn, reduce spending on contract services, government needs to do less. That means deciding whats important and whats not. That means taking an honest look at every program and prioritizing; everything cant be equally important, otherwise nothing is important.
Only then can a rational decision be made about what to spend money onand what not to spend money on, including contract support and, just as likely, federal employees. Until then, little will change.
Unfortunately, the last thing Washington is likely to do is rein itself inbecause that means giving up power. Far better to come up with an imaginary solution to a nonexistent problem than actually act on the real problem.