Insourcing talk reignites debate about cost of government services

Acquisition officials wrestle with how to calculate overhead costs in public/private comparisons

Whether the topic is insourcing or outsourcing, math is always a flash point for debate.

The question is how agencies should compare the costs of services offered by federal employees to those of their contractor peers. It’s not enough to take the line-item costs of a contractor’s services and match those against the hourly pay rate of federal employees. Agencies must also figure in training, equipment, health care and other benefits, and the management overhead associated with maintaining a staff — costs that stretch well beyond the life of any given project.

For those reasons, Steve Schooner, associate law professor and co-director of the Government Procurement Law Program at the George Washington University, said comparing private- and public-sector costs is like comparing apples and oranges.

But comparisons are made nonetheless. During the second Bush administration, federal officials often asserted that, factoring in all such costs, contractors could provide the same services for less — a point hotly contested by feds. Now Obama administration officials are taking the opposite position.

According to industry experts who testified before the House Defense Acquisition Reform Panel, the Navy is working on a plan to insource as many as 9,800 jobs in the coming years, with the expectation of reducing the cost of services by 40 percent.

Likewise, Defense Department officials estimate they can save $44,000 a year for each position they bring in-house, according to committee language accompanying the fiscal 2010 Defense Appropriations bill.

However, experts say such comparisons are tricky. Beyond the costs that stretch deep into agencies and last for several years, there are costs that can’t be compared dollar-for-dollar, said Terry Raney, senior vice president and division group manager at CACI’s Business Management Division.

For example, it is not easy to account for the experiences and skills a particular private- or public-sector employee has gained over the years, and such intangibles might be worth a higher price.

However, the real problem is that government officials aren’t making the comparisons and are instead basing their decisions on other factors, such as politics, Raney said.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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Reader comments

Tue, Jan 19, 2010

Stewart must be a federal employee. As a contractor I have heard this argument many times. Since I can view the pay of the federals I work with, let me tell you this. They are payed comparable to what I make. Perhaps the latest 5% permanent pay reduction I received this year made it even more competative. Better health care is a misnomer, and I pay more out of pocket this year than ever before. Unlike federal employees, my health benifits STOP at midnight the day my employment ends....which could be any moment based on Wall Street and the economy. There is no pension plan to provide for me in my retirement. If I do not save enough on my own, I will be unable to retire. If I have vacation days left over at the end of a year, it is gone. No carryover, no "use or loose" tank. So someone tell me why I would not want to be employed in a federal position?

Tue, Jan 12, 2010 Stewart

One of the points I think the Gov't overlooks on a regular basis is the fact that, REALLY, they are not competitive with Industry for the people that would hold these positions. You get better pay, better health care in many instances, better chance of advancement, more prestige and more impact in Industry than as a Gov't employee. So they're either hoping that Industry won't fight to maintain it's own workforce AND that workforce will be willing to give up some of the benefits of working the private sector for the perceived "stability" of a Gov't job, OR they are betting that hiring unqualified personnel and providing them with the training and experience necessary will end up being cheaper.

Tue, Jan 12, 2010 Mike DC

I think the Defense Department claims are particularly suspect -- this looks more like creating politically sensitive federal FTEs that will be harder to cut than the much maligned contractors. Here's a question for you: which worker is easier to replace: a contractor who isn't performing or a career fed who isn't doing their job? Once you factor in this problem, it's a safe bet that there are no savings from insourcing many of these jobs.

Tue, Jan 12, 2010 John

Re: Jason, 10 years ago the "party line" was we can save money by contracting out and getting rid of government positions.

Tue, Jan 12, 2010 jerry St Louis

As I see it the main problem with these idological-based decisions, regardless of the administration, is having government or quasi-government organizations perform the study. In the same manner that one wrote papers consistent with the professor's views in order to maximize one's grade having a government employee perform a study will almost always result in something akin to the administration's publicly available position. One only has to look at the results of the Intelligence Community providing the previous administration with info supporting Weapons of Mass Destructiom.

Until a methodology is developed to compare the total goverment/contractor positions this is only a political decision. We all need to remember 2010 is an election year.

Thank you

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