Lessons from Snowden: Another perspective

Last month, Stan Soloway complained that the Edward Snowden leak scandal has resulted in an open season on contractors. I would certainly agree that bad scandals don’t always make for good policy.

However, scandals can often help to point conscientious reformers in the right direction. And, indeed, the Snowden scandal is doing just that—on costs, pay, and security.

At a June 11 hearing of the Senate Defense Appropriations Subcommittee, Chairman Richard Durbin (D-IL) asked Department of Defense Comptroller Robert Hale: “(D)o you dispute this finding that the average contract employee costs two to three times as much as the average DOD civilian employee?” Mr. Hale responded, “No, it sounds about right.”

The comptroller, no friend of civilian employees, later added: “(I)f you're going to have a job over a long period of time, probably better off, it's probably cheaper to have a civilian government employee do it.”

Nothing groundbreaking. From the Project on Government Oversight, which found that contractors are usually twice as expensive as federal employees, to former Defense Secretary Robert Gates, who told The Washington Post that contractors are 25 percent more expensive, it is well-known that contractors usually, although not always, cost more than civilians. 

Unfortunately, DOD fails to review long-term functions performed by contractors to determine if savings could be achieved from conversion to in-house performance. And as we have seen in the context of sequestration, it is much easier for the department to squeeze savings out of its cheaper civilian workforce than to shed service contracts. 

Mr. Soloway ill-advisedly invokes insourcing in order to explain away the comptroller’s acknowledgement that civilian personnel are significantly cheaper than contractors.

In fact, insourcing has resulted in significant savings. According to the Army, insourcing resulted in savings of 16 percent to 30 percent; insourcing was largely responsible for reducing the Army’s contract services obligations from $51 billion in fiscal 2008 to $36 billion in fiscal 2010.

In the Defense Department generally, insourcing generated substantial savings but not enough to offset the constantly increasing cost of contractors. According to the Government Accountability Office, “although DOD avoided $900 million in costs for contracted support services in [fiscal 2010] due to the budget decision to reduce funds associated with insourcing, total spending across all categories of service contracts increased in fiscal year 2010.”

Proponents of insourcing, no matter how zealous, would never insist that insourcing savings can offset the ever-increasing costs of outsourcing. 

Mr. Soloway went after AFGE by name in his column: “Already the American Federation of Government Employees is on the warpath with `briefing papers’ that are so over-stated and factually incorrect they would be good fodder for comedy, if some didn’t accept them at face value.”

Pretty strong language. When I asked Mr. Soloway to provide me with copies of these “briefing papers”, he pointed to a statement I made on May 29 decrying the administration’s change in policy on capping taxpayer subsidies to contractor compensation.

In April, the administration embraced an annual cap of $230,700. However, in May, the administration, without explanation championed a $400,000 cap.

I don’t think a reasonable person would agree that my statement was “overstated and factually incorrect”. However, readers can obtain my statement from Mr. Soloway and judge for themselves.

As Mr. Soloway alludes, the Snowden scandal has focused attention on contractor compensation. The questions for lawmakers and policymakers are these: should taxpayers continue to be required to pay individual contractors almost $1 million annually under a formula based on out-of-control private sector executive compensation, at a time when federal employees and their families have lost tens of billions of dollars in compensation during the last three years?

Or should those subsidies for the top 1 percent of all contractors be capped at a more modest level, at least until the federal deficit is no longer a matter of concern, so that contractors can supplement their employees’ compensation out of their own profits?

Taxpayers are appreciative that the Snowden scandal is helping to finally force the Congress to answer these questions. Mr. Soloway insists that AFGE “continue(s) to hammer their themes of `overpaid contractors’ while still also highlighting and (correctly) complaining about the pay gap” between federal employees and workers performing comparable work in the private sector.

Guilty as charged! However, underpayment of federal employees is not a justification for overpayment of contractors.

Finally, the Snowden scandal has highlighted contractor performance of functions too important or sensitive to outsource.

Too often, contractors are either effectively or explicitly making DOD policy or determining the department’s interest through illegal contracts for inherently governmental functions; unauthorized personal service contracts; and contracts for closely associated with inherently governmental functions, which by law must be avoided to “the maximum extent practicable” because of their risk: Developing budgets; interpreting regulations; overseeing contractors; drafting policies, analyses, feasibility studies, strategy options, and organization plans; evaluating another contractor’s performance, planning acquisition strategies, assisting in support of acquisition planning, assisting in contract management, evaluating another contractor’s proposal, and assisting in the development of statements of work.

And who gets these contracts? Usually, former senior civilian and military officials who leave government service and then return to their old offices as contractors, and, effectively, continue to make policy and spend vast sums of money even though their first loyalty is no longer to the Department. 
 
Using the Snowden scandal to declare open season on contractors and indiscriminately impugn their patriotism and their abilities is wrong, as Mr. Soloway rightly points out.

However, if we are thoughtful and narrowly focused, the Snowden scandal can provide reformers with three important policy options:

1. Reduce the cost of the Defense Department’s infrastructure by substituting cheaper civilians for contractors, particularly with respect to long-term functions.
2. Establish a much more modest cap on taxpayer subsidies towards contractor compensation.
3. Reassert government control over government interests.