Outsourcing Government Services Might Be Bad Business

August 2011
Vol. 15, Issue 1
Outsourcing Government Services Might Be Bad Business
B
ased on the current public debate regarding the salary comparisons of federal and private sector employees,
POGO 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 billable rates in order to determine if the current level of
service contracting serves the public interest. Given the recent debt ceiling crisis, this analysis has become even more
relevant—approximately one-quarter of all discretionary spending now goes to service contractors.
The current debate over pay differentials largely relies on the misconception that the government pays private sector
compensation rates when it outsources services. POGO’s report, Bad Business: Billions of Taxpayer Dollars Wasted on
Hiring Contractors, indicates otherwise: in fact, it shows that the government regularly pays service contractors at
rates far exceeding the cost of employing federal employees to perform comparable functions.
POGO’s study reviewed government data for federal, contractor, and private sector employees in 35 occupational
categories, including accounting, budget analysis, contracting, food inspection, nursing, and security. Our findings
confirm other studies that have found federal employees are compensated at a higher rate than their counterparts
in the private sector, but we also found that the government pays a much higher rate for a contractor to perform
the same services. In our study we found that the federal government approves service contracts deemed fair and
reasonable that pay contractors 1.83 times more than the government pays federal employees in total compensation
(which includes benefits), and more than 2 times more the total
compensation paid in the private sector. In one case, contractor
billable rates were 483 percent higher than the full compensation
$283,005
paid to federal employees performing comparable services.
Federal employees were less expensive than contractors in 33 of
the 35 occupational classifications POGO reviewed. Additionally,
we found that 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.
Contractor
Considering the current heated discussion about budgetary
billable rate:
savings, pay comparisons, and a federal employee pay freeze—
$122,373
$283,005
which only the Department of Energy has stated it will extend
Benefits $32,558
to its service contractors—there is a need for the government to
determine the actual cost of insourcing or outsourcing federal
Federal employee
work. POGO urges policymakers to change their current focus on
base compensation
comparing federal and private sector salaries to analyzing the full
$89,815
costs, including all of the government’s administrative and overhead
costs, of hiring contractors and of hiring federal employees to
perform comparable services. That change in focus is the only way
to improve cost estimates for the entire federal workforce,
Cost to taxpayer for equivalent work.
including contractors, and to capture actual savings. ■
In This Issue: 1 Outsourcing Bad for Business? 2 Director’s Letter 3 Revolving Regulators
at SEC 3 30 Years of Government Accountability 4 POGO’s DCAA Recommendations
4 Pressing Obama on Scientific Integrity 5 POGO’s Reform Agenda 6 Go to POGO.org
Staff
Danielle Brian, Executive Director
Scott Amey, General Counsel
Angela Canterbury, Director of Public Policy
Paul Chassy, Ph.D., J.D., Investigator
Danni Downing, Editor/COTS Director
Abby Evans, Development Associate
Ned Feder, M.D., Staff Scientist
Ben Freeman, National Security Fellow
Andre Francisco, Communications Associate
Neil Gordon, Investigator
Julie Koh, Finance Manager
Johanna Mingos, Data Specialist
Joe Newman, Director of Communications
Chris Pabon, Director of Development
Bryan Rahija, Blog Editor
Keith Rutter, Director of Operations
Pam Rutter, Web Manager
Michael Smallberg, Investigator
Nick Schwellenbach,
Director of Investigations
Peter Stockton, Senior Investigator
Paul Thacker, Investigator
Jake Wiens, Investigator
Adam Zagorin, Journalist-in-Residence
Dahna Black, Intern
Rhya Ghose, Intern
Rob Jones, Intern
Alison Nabatoff, Intern
Demoni Newman, Intern
Rohail Premjee, Intern
Rebecca Rotenberg, Intern
Board of Directors
David Hunter, Chair
Lisa Baumgartner Bonds, Vice Chair
Dina Rasor, Treasurer
Ryan Alexander
Henry Banta
David Burnham
Michael Cavallo
Stacy Donohue (Observer)
Charles Hamel
Janine Jaquet
Morton Mintz
Nithi Vivatrat
Anne Zill
2 ■ Vol. 15, Issue 1
Letter from the Executive Director
Dear Friends,
Perhaps the one thing everyone agrees on is that we are facing enormous
challenges in Washington. But the vast majority of the political discourse is
focused on complaining about how bad things are and simplistically pointing
fingers of blame. It seems to me the only thing this is accomplishing is to drive
people away from constructive engagement and into their comfortable corners
of cable television drivel. POGO has an alternative. We have pulled together
a dozen reforms we believe will fundamentally improve how government
functions, and (along with Taxpayers for Common Sense) a proposal to cut
waste from national security spending by nearly $600 billion.
As you will read in the article on page 5, in our effort to explore solutions, POGO
has identified specific reforms that can and should be enacted now. Together,
they will accomplish so much towards increasing accountability and reducing
corrupting influences on sound policy, all while cutting wasteful spending.
Who is opposed to those ideals? From progressives to tea party activists, we
all share these goals. So why isn’t it happening yet?
I am asking each of you to find one reform featured in articles in this
issue that appeals to you. Whether it’s reining in the wasteful shadow government of contractors, getting parochial politics out of defense
spending, or cutting back on multi-billion dollar Department of Energy construction projects with dubious missions (or you can go to pogo.org and
check out the whole Good Government Guide of Reforms), we need your help
to get Congress to pay attention. For many of our reforms, we have set up
actions on our website that allow you to contact your Members of Congress
to let them know you want them to work on that reform. Or, if you’re
interested in checking out our recommended cuts in national security spending, go to getinvolved.pogo.org/save600billion/. If you’re excited about a reform or spending cut that we haven’t set up for action yet, just let us know!
The time to harness discontent and convert it into positive energy is not just
during election season. Let’s work together to push our elected officials to
pursue meaningful systemic reforms that will make our government more
accountable, effective, open, and ethical.
Best,
Danielle Brian, POGO Executive Director
POGO Report Tracks “Revolving Regulators” at the SEC
T
he Securities and Exchange Commission (SEC) is tasked with a critical mission:
protecting the investments of everyday Americans who “turn to the markets to
help secure their futures, pay for homes, and send children to college.” However, the
SEC has come under renewed criticism for being too close to the industry it oversees—
Wall Street—especially in the aftermath of the financial crisis. In particular, several
reports by the SEC Inspector General have raised troubling questions about whether
the promise of future employment representing Wall Street firms unduly influences
the SEC’s oversight of certain firms and their clients.
POGO recently launched an investigation to examine the revolving door through
which former SEC employees go to work for or represent entities regulated by the SEC. In May,
POGO released its report, Revolving Regulators: SEC Faces Ethics Challenges with Revolving Door, along with a database
of post-employment statements that were filed by former SEC employees and obtained by POGO through the Freedom
of Information Act.
All told, POGO’s report and database show that 219 former employees filed 789 statements between 2006 and
2010 announcing their intent to appear before the SEC or communicate with its staff on behalf of private clients. One
former employee had to file 20 statements during this period in order to disclose all of his clients and the issues on
which he expected to appear before the SEC. Another former employee filed his first statement just two days after
leaving the agency.
POGO recommended that Congress and the SEC strengthen and simplify the rules for former SEC employees, make
all post-employment statements publicly available online, and extend the same post-employment regulations to other
financial watchdog agencies. Now that the SEC has been given even greater authority to protect investors and markets
from the next financial crisis, it’s more important than ever for the public to see whose interests the SEC is truly
representing. ■
POGO Celebrates 30 Years
W
ith an assist from comedian Lewis Black and a cadre of wellwishers representing the good government community,
whistleblowers, and past and present Members of Congress, the
Project On Government Oversight pulled off a celebration in
May that was three decades in the making.
The reception, dinner, and panel discussion at the House of
Sweden highlighted 30 years of accomplishments ranging from
the organization’s early work rooting out wasteful defense
spending to its more recent investigations into oil industry
and financial sector corruption.
While Black, who is known for his biting social commentary,
could not attend the event, he provided a videotaped toast
and narrated a brief documentary about POGO’s mission and
successes at holding the government accountable.
Black called POGO, “The most a**-kicking, name-taking
bunch of goody two-shoes good-government types in
America.”
The evening was highlighted by a panel discussion
moderated by the Huffington Post’s Dan Froomkin and featuring
Representative Jan Schakowsky (D-IL), former Representative Chris Shays (R-CT), and noted Wall Street maverick
David Einhorn. Titled “Wikileaks, Wall Street and Whistleblowers: The Role of Government Oversight,” the discussion
focused on the intersection of three areas of that have been at the core of POGO’s work in recent years.
“We’ve seen five different presidents and a slew of cabinet secretaries and agency directors come and go, but there’s
really no end in sight to our work—no matter which political party is in power, the need for good government oversight
will never go away,” said Danielle Brian, who started at POGO as in intern in 1983 and became executive director in
1993. “It has been a remarkable journey, and we’re looking forward to another 30 years of exposing corruption and
exploring solutions.” ■
Vol. 15, Issue 1 ■
3
POGO Recommends Independence for DCAA
I
n February, POGO Director of Investigations Nick Schwellenbach testified before the
Senate Subcommittee on Contracting Oversight, chaired by Senator Claire McCaskill
(D-MO), on how to improve government contract auditing. Nick confined most of his
testimony to changes that should occur at the Defense Contract Audit Agency (DCAA) and
recommended that the responsibility for auditing the hundreds of billions of dollars spent
each year on defense and civilian contracts fall to a single, independent agency outside of the
Pentagon’s chain of command.
According to DCAA’s website, its mission is to “…perform all necessary contract audits for the Department of Defense
and provide accounting and financial advisory services regarding contracts and subcontracts to all DoD Components
responsible for procurement and contract administration…..The DCAA shall provide contract audit services to other
Federal agencies as appropriate.”
DCAA conducts the vast majority of contract audits in the federal government—76 percent of non-DoD contract
audits. However, because non-DoD agencies must pay for DCAA services (unlike DoD components), there is a disincentive
for them to use DCAA’s auditing services. Furthermore, DCAA prioritizes DoD requests for its services over non-DoD
requests. As a result, agencies are increasingly turning to private sector auditors that charge more per hour of auditing
services.
Rather than creating a new bureaucracy, Congress could simply expand the duties of the existing DCAA, while
making it independent of the DoD, Nick told the Subcommittee. Unlike most agencies, a new Federal Contract Audit
Agency (FCAA) could save more money each year by uncovering waste and fraud than it would cost to run it. For
instance, DCAA estimates that it saved taxpayers $5.10 for every $1 invested in it in fiscal year 2010. The FCAA would
also provide a needed check on contractors, ensuring the government is not overcharged for goods and services, would
be more efficient than the current system, and would provide greater incentive for non-DoD agencies to actually use
an auditor.
It is essential that a new FCAA be given enough resources and authority to succeed. The DCAA is woefully
understaffed, and there are also concerns that it is “risk-averse,” not having issued a subpoena to a contractor in more
than 20 years.
“Contract auditors provide a great return on investment and save far more money than they cost,” Nick said. “We
believe an FCAA makes sense, but even if DCAA remains within DoD, it needs to be as strong as possible.” ■
Scientific Integrity Letter to President Obama
S
BP Deepwater Horizon Oil Budget:
What Happened To the Oil?
The National Incident Command (NIC) assembled a number of interagency expert scientific teams to
estimate the quantity of BP Deepwater Horizon oil that has been released from the well and the fate of
that oil. The expertise of government scientists serving on these teams is complemented by
nongovernmental and governmental specialists reviewing the calculations and conclusions. One team
calculated the flow rate and total oil released. Led by Energy Secretary Steven Chu and United States
Geological Survey (USGS) Director Marcia McNutt, this team announced on August 2, 2010, that it
estimates that a total of 4.9 million barrels of oil has been released from the BP Deepwater Horizon well.
A second interagency team, led by the Department of the Interior (DOI) and the National Oceanic and
Atmospheric Administration (NOAA) developed a tool called the Oil Budget Calculator to determine
what happened to the oil. The calculator uses the 4.9 million barrel estimate as its input and uses both
direct measurements and the best scientific estimates available to date, to determine what has happened
to the oil. The interagency scientific report below builds upon the calculator and summarizes the
disposition of the oil to date.
ince coming into office, President Obama has made several pledges for
scientific integrity. Yet, there is reason to question whether the Administration
is living up to those pledges. For instance, following the BP oil spill this last
summer, the executive branch put out an estimate that the oil spill size was 4.9
million barrels. Days later they released a report on the oil’s fate, concluding
that most of it was gone. Because both the spill size estimate and the oil-fate This “report” on the fate of 4.9 billion gallons
report were only a few pages long and lacked any mathematical calculations, of oil released during the BP oil disaster is only
5 pages and did not include any calculations or
Hill staffers and members of the media began questioning the Administration.
To get to the bottom of what happened, POGO worked with the office of supporting evidence.
Representative Raul Grijalva (D-AZ), who was Chairman of a subcommittee on the House Natural Resources Committee.
Our efforts resulted in various agencies, including the Environmental Protection Agency, the National Oceanic and
Atmospheric Administration, and the Department of the Interior, turning over drafts of the reports, internal emails,
and other communications. Those drafts revealed that the Administration ignored the advice of its own science
experts and appeared to have placed public relations before science. For instance, shortly before releasing the report,
an official with NOAA wrote to other government scientists that, “We have received strong pushback from WH [White
House] on the cumulative total used in our graphic being more that [sic] the official 4.93 M bbls.”
Both POGO and Representative Grijalva wrote letters to the President. In our letter, we noted that the EPA was
ignored, the executive branch’s report put public relations first and science second, and that the White House appeared
to meddle in the process.
With this letter, we pressed the Administration to maintain greater scientific integrity when making complex,
technical decisions. The Administration denied it had done anything wrong. ■
In summary, it is estimated that burning, skimming and direct recovery from the wellhead removed one
quarter (25%) of the oil released from the wellhead. One quarter (25%) of the total oil naturally
evaporated or dissolved, and just less than one quarter (24%) was dispersed (either naturally or as a
result of operations) as microscopic droplets into Gulf waters. The residual amount — just over one
quarter (26%) — is either on or just below the surface as light sheen and weathered tar balls, has washed
ashore or been collected from the shore, or is buried in sand and sediments. Oil in the residual and
dispersed categories is in the process of being degraded. The report below describes each of these
categories and calculations. These estimates will continue to be refined as additional information
becomes available.
Figure 1: Oil Budget - Shows current best estimates of what happened to the oil.
Vol. 15, Issue 1 ■
4
POGO Has the Solution for What’s Ailing US
T
his January, POGO released its recommendations to help put the country on the right track to a
more effective, accountable, open, and ethical federal government—one that is truly responsive
to the needs of its citizens. POGO’s Reform Agenda: A Good Government Guide for the 112th Congress
includes more than 48 specific proposals for oversight and legislation on 12 priorities: opening the
government so it’s more accountable to the public; protecting federal whistleblowers, who protect
taxpayers; stopping the drain of defense dollars; fixing the regulatory failures that led to the BP
gulf oil disaster; protecting consumers and investors; curbing the costs of the shadow government
of contractor employees; raising the ethical bar by slow the revolving door between government and
industry; making advisors to our government more accountable; watchdogging Inspectors General,
but also giving them more teeth; preventing foreign lobbyists from operating in secrecy; improving
nuclear security and saving billions of taxpayer dollars; and making healthcare safer.
We’ve hit the ground running with these reforms. POGO has had several fruitful discussions about
our proposals with lawmakers and their staff—including both seasoned leaders and new Members
of Congress. Since we issued our agenda, legislation has been introduced to strengthen and expand
whistleblower protections for federal workers and to enact reforms to fix the failures that led to the
BP Gulf Oil Disaster. We recently worked with Members of the House to pass a bill out of committee
that would transform our ability to track federal spending, the Digital Accountability and Transparency
Act (H.R. 2146). We, along with allies, successfully worked with Senators Patrick Leahy (D-VT) and
John Cornyn (R-TX) to pass the “The Faster FOIA Act” with unanimous approval. We also worked with
Senate offices to block an anti-speech provision that would have allowed federal employees to be
punished for sharing classified information without any due process rights. In addition, POGO staff
have testified before Congress on our ideas to improve and modernize the Freedom of Information
Act and how to improve federal contract auditing, as well as before the Commission on Wartime
Contracting in Iraq and Afghanistan on
how “Deficient Contractor Accountability
POGO’s Reform Recommendations
Leaves Agencies and Taxpayers at Risk.”
Though there has been a lot of focus on
the partisan divide and high potential for
gridlock in Washington, POGO is confident
about the possibilities of cooperation on
many of our proposals. All sides at least
agree that reducing waste, fraud, and
abuse will save billions of taxpayer dollars,
and we are finding interest in finding ways
to get there.
1. Open the Government
2. Protect Federal Whistleblowers, Who Protect Taxpayers
3. Stop the Drain of Defense Dollars
4. Fix the Failures That Led to the BP Gulf Oil Disaster
5. Protect Consumers and Investors
6. Curb the Costs of the Shadow Government
7. Raise the Ethical Bar, Slow the Revolving Door
8. Make Advisors to Our Government More Accountable
As POGO Executive Director Danielle
Brian noted, “Reforming government isn’t
about being red or blue, progressive or Tea
Partier —it’s about recognizing what’s in
the best interest of the taxpayer and
having the courage to set aside partisan
politics.” ■
9. Watchdog the Watchdogs, and Give Them More Teeth
10. Prevent Foreign Agents from Operating in Secrecy
11. Improve Nuclear Security and Save Billions of
Taxpayer Dollars
12. Make Healthcare Safer
Vol. 15, Issue 1 ■
5
Find POGO on the Web!
If you’re on the web, you’re bound to run into POGO. Every
day we’re posting stories on our blog. Follow us on Twitter,
friend us on Facebook, or add us to your Google+ circle.
We’re producing videos for YouTube and Vimeo, and podcasts
for iTunes. Find short posts on Tumblr. No matter where
you are on the web, POGO’s investigations, articles, and
action alerts will be there, too. Connect with POGO at
http://www.pogo.org/about/contact.html/.
Mission Statement
The Project On Government Oversight is a nonpartisan independent watchdog that champions good government
reforms. POGO’s investigations into corruption, misconduct, and conflicts of interest achieve a more effective,
accountable, open, and ethical federal government.
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