Myth: Civilian Workers are Cheaper than Contract Employees

Federal workers are cheaper than contract workers. It seems that everyone thinks that.

An article in the Federal Times the other day caught our eye. It was written by J.David Cox Sr. who happens to be the national president of the AFGE (American Federation of Government Employees), a union representing 670,000 government workers. So, keep that in mind if you read the article.

Cox quoted former Defense Secretary Gates that federal workers cost the government 25 percent less than contractors (that's possible, and believable). Cox also quoted Comptroller Robert Hale before a Senate subcommittee last June that contractors are two to three times more expensive than civilians (a statement probably taken out of context, otherwise it would be demonstrably false). Cox then referred to other studies from the Army and GAO that concluded significant savings could be achieved by insourcing the work that is now being provided by contractors.

One reason that more work is not in-sourced is because DoD has capped the size of the civilian workforce. In a couple of studies from 2010 and 2012, it was found that in-sourcing saved quite a bit of money and could have saved more if the civilian workforce had not been capped. Another recently completed GAO study confirmed that civilian workers were cheaper than contract employees.

The problem with these studies is that they do not measure efficiency. There is ample anecdotal evidence to show that contractors can perform certain tasks more efficiently than a Government workforce. One good example is the Department of Energy's experiences in obtaining contract audit services. Until a year or so ago, DOE obtained its contract audit services from DCAA (Defense Contract Audit Agency). Then, the Department made a decision to contract for those services from private firms. The private firms are bringing in their audits much quicker and cheaper than DCAA, even though their hourly rates are higher than DCAA's billing rates. There are many other examples where the Government has been more pleased with contractor performance than with Government employees' performance.

And then there was the 16 furlough days we just went through. Government workers were furloughed alright but now they are going to get all their back pay. That is tantamount to extra paid vacation. How efficient can that be - driving up the overhead?

And then there was this recently completed study from the Bureau of Labor Statistics. Government workers are absent 50 percent more than private-sector workers. How efficient can that be?

Contractors have a profit motive whereas Government agencies do not. Contractors are more likely to push their employees a little more than Government supervisors and managers. Contractors are more likely we weed out poor performers more quickly than Governmental agencies. Finally, contractor employees are less likely to be represented by a bargaining unit than government workers, giving contractors more flexibility to "manage" their workforces than many Governmental agencies.

Insourcing decisions should not be made solely on the cost per hour for civilian employees versus contractor employees. One needs to also consider the staffing plans of both competitors.