Outsourcing can be cheaper for agencies, GAO analysis finds

Contractors have often argued that outsourcing is cheaper for the government than keeping the work in-house, and now they have a Government Accountability Office report to prove it.

A GAO study that examined the costs of the State Department hiring private security contractors in Iraq versus doing the work themselves found that the government saved money.

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A key to that calculation is that more than just the cost of the contract needs to be figured into the analysis, GAO said in a March 4 report.

The private security companies were less expensive in four out of five cases GAO reviewed. Overall, the difference between the contractors’ cost and State’s estimated costs ranged from $3 million for one task order to more than $785 million for a one-year contract, the report states.

“GAO’s thorough analysis serves as further validation of earlier studies and reports, which effectively shatter the myth that contractors are inherently more expensive than government personnel,” said Stan Soloway, president and chief executive officer of the Professional Services Council and a former Defense Department under secretary for acquisition reform. “As the report suggests, it is a far more complicated and nuanced issue than many realize.”

GAO’s report reiterates experts’ comments on direct comparisons between the private and public sectors for the same work. Prices alone can’t give the whole picture, they say. Essentially, experts say that kind of comparison is apples to oranges.

GAO wrote that contract requirements, such as requiring security clearances, can influence prices. Contractors often use non-U.S. citizen employees for security. For example, one contractor providing embassy security in Baghdad hired 89 percent of its employees from countries other than the United States, which contributed to lower costs. The State Department, however, could do work less expensively on a contract when it required security clearances. The department's estimated annual cost would be $240 million, whereas the contractor charged $380 million for a year, GAO reported.

While State officials had not done a direct cost comparison for overall security services, officials told GAO they would both use the same number of employees as the contractors did and use only employees who were U.S. citizens.

However, State Department officials also said they don’t have that many employees. As a result, they would need to hire enough employees to have as many stateside as those deployed because of a rotation policy. State officials said hiring alone would double the department’s costs. In addition, these employees would need to be hired a year before deploying them so they could complete training as foreign service agents. Furthermore, the hiring process would drag down operations because the system has been gummed up since the Sept. 11, 2001, terrorist attacks, GAO reported.

GAO also found the costs of deploying federal employees overseas would account for more than half of the State Department’s bill. The department would have to pay for hiring and training employees to provide security services.

To outsource the work though, the State Department has paid administrative costs to award task orders and contracts and to oversee the contractors’ work, especially after some high-profile incidents involving private-sector security contractors in Iraq.

GAO pointed out more costs that are hard to quantify. The State Department would have to develop new career tracks, pay for additional administrative overhead costs and even build new housing at the embassy for employees. State officials told GAO foreign service agents are not allowed to live with contractors and the housing that contractors use at the embassy would be insufficient for the agents.

The comptroller general, who heads GAO, directed this review on his own initiative because of a broad level of interest in Congress about issues related to Iraq.

“Generally, when costs have been discussed, the focus has been on the daily rate paid to contractor employees, rather than on the total costs of using State Department” or Defense Department personnel, GAO wrote in the report.

As for the overall report, State Department officials did not officially respond to GAO.