Kelman: Too many contractors?

The government’s egalitarian pay structure helps explain some outsourcing decisions

Federal Computer Week’s FCW.com Forum, which provides an opportunity for people to voice their opinions, recently posed the provocative question of whether government relies too heavily on contractors (“FCW Forum: Do agencies rely too much on contractors?" FCW.com, Oct. 22).Most of those participating answered “yes.”

These answers reflect, as I have noted on occasion in my columns and blog, a worry I hear expressed among academics studying public management and graybeard practitioners in organizations such as the National Academy of Public Administration.


My Harvard colleague Jack Donahue has said there are jobs that are contracted out in government, mostly various high-end professional jobs, that would not normally be considered good candidates for contracting out. Typically, organizations base their make-or-buy decisions on the basis of scholarly theories and rules of thumb, such as “keep core competencies in-house, contract out the rest.” (By the way, in both cases, information technology development work is usually considered to be a good candidate for contracting out.)


Donahue asks why government makes such inappropriate decisions – arguing also that some work is inappropriately kept in-house that should be contracted. His basic answer is salary structure. The government pay structure is much more egalitarian than in the private sector, meaning that high-end jobs are lower-paid in government. Therefore, agencies have trouble filling those high-end jobs with good people, which creates the pressure to contract. The flip side is that low-end jobs are higher paid in government, which leads to pressures from incumbent employees to keep them in-house, because contractor salaries would be lower.

Donahue’s compelling argument opens a broader question as to why government chooses to contract out some activities that, by any theory of the make-or-buy decision from the business world, would suggest should be done in-house.

Salaries are one reason, but there are others.

Recently, at a session on contracting at an academic conference I attended, the city manager of a jurisdiction in the Washington metropolitan area said, “We have embraced performance-based contracting for our contractors, but not performance-based work for our own employees.” It is far easier, he said, to establish and enforce performance metrics for contractor organizations than for in-house employees.

Let’s add to this the widespread observation of federal managers that a poorly performing individual contractor employee will typically be removed from the workplace immediately, while removing a poorly performing civil service employee remains difficult. In addition, the antiquated federal hiring system creates difficulties in recruiting good federal employees.

All those are government’s self-inflicted wounds.

Private firms don’t normally hire contractors in situations in which the theories suggest in-house production makes more sense, because they don’t suffer from government- unique constraints that the theories don’t consider. If we want to reduce inappropriate contracting, we need to reform government’s inappropriate management systems.

Kelman is professor of public management at Harvard University’s Kennedy School of Government and former administrator of the Office of Federal Procurement Policy. He can be reached at steve_kelman@harvard.edu.
 

About the Author

Kelman is professor of public management at Harvard University’s Kennedy School of Government and former administrator of the Office of Federal Procurement Policy. Connect with him on Twitter: @kelmansteve

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