The government is already over-outsourced

 

Much of what follows is taken from “The True Size of Government,” by Paul Light of the Brooking Institution.  All unattributed quotes are from this source.  The book is recommended by the Heritage Foundation's Virginia Thomas, former OMB Director Franklin Raines, US Senator George Voinovich, former Federal Reserve Board Chairman Paul Volcker, and former US Senator David Pryor, who is currently the Director of the Institute of Politics at Harvard University.  Because the government does not track and consequently knows very little about its contract workforce, Light calls the contract workforce the shadow of government.

 

The government does not track the size of its shadow contract workforce; however, Light calculated the shadow workforce from available cost data.  The results below are for 1996, taken from Appendix A of “The True Size of Government”:

 

                                    Jobs

                  ------------------------------------------

                  Civil Svc   Contract    Grant       %Shadow

Including defense 1,892,000   5,635,000   2,413,000   75/81

Excluding defense 1,113,000   2,000,000   2,360,000   64/80

Selected agencies

      Energy         19,100     633,000      40,200   97/97

      EPA            17,200      43,000     143,400   71/92

      NASA           20,100     350,600      26,900   95/95

 

      Interior       66,700      29,700       4,000   31/34

      Agriculture   100,700      82,000      42,000   45/55

 

Light's estimate of the total workforce performing government work is 17 million, greater than these figures, but that includes work performed by local government under unfunded federal mandates.  This category is omitted because it is not related to work that is the responsibility of federal agencies.  The first entry in the percent shadow column includes only contract jobs; the second includes grant jobs as well.

 

In stark contrast to the high level of outsourcing by government agencies, 4 of 5 private firms outsource less than 10% of their work.  Private firms, subject to the discipline of the marketplace, have learned of the need to maintain core competencies in-house and that employees are more accountable to the firm that employs them than contractors are.  To increase efficiency and accountability, federal agencies should be striving to reduce our outsourcing to similar levels.

 

The experiment of over-outsourcing has already been done, and the results are in.  Among the most outsourced agencies are DOE, EPA, and NASA.  They are also among the most troubled.  For example:

 

-                 According to the NY Times (Nov. 24, 2002), “an internal Energy Department report this year concluded that the agency's largest program, which pays contractors to clean up the waste left by the nation's nuclear weapons programs, has been fundamentally mismanaged since its founding 13 years ago, and much of the $60 billion it has spent over that time was wasted.”  The Times goes on to say, “no one at the department actively supervises multibillion-dollar cleanup projects that are let out to contractors.”  Contractors are running the show.

 

-                 After the Challenger exploded in 1986, 78% of the engineers, scientists and administrators polled agreed with the statement, "NASA has turned over too much of its basic engineering and science work to contractors (NY Times, Feb. 18, 2003)." Among the problems revealed by subsequent investigations were “faulty welds in a booster rocket — faults that had been concealed through falsified X-rays by a subcontractor to avoid the cost of repairs (NY Times, Feb. 2, 2003).”  In 1990, a study of NASA by the National Academy of Public Administration (NAPA) found there was serious doubt that NASA had the in-house competencies to make responsible program decisions and effectively manage its contract work force, and recommended that in-house capabilities be rebuilt.  The Aerospace Safety Advisory Panel report of 2001 “suggests that NASA is essentially losing control of the work that contractors are doing (National Public Radio, Feb. 3, 2003).”  Contractors are running the show.

 

-                 The Civil Service Subcommittee’s investigation of EPA in 1989 revealed “conflicts of interest, hidden cost, and poor performance associated with contracting out.”  A 1993 NAPA study of EPA concluded that “in many places, the agency’s technical capacity was exactly one person deep.”  Contractors are running the show.

 

Over-outsourcing is bad for the agency:

 

-                 Merit:  The civil service classification system was designed to assure “merit in hiring, fairness in promotion, and protection from political whim.”  The merit system was created in 1883 to replace the corrupt “spoils system,” under which federal jobs were parceled out as gifts to political supporters.  There is no merit system in place for federal contractors or their employees.  Some see the Administration’s push to privatize as a 21st Century version of the old 19th Century spoils system, in which the corrupt cronyism occurs at the corporate level instead of at the level of individual political supporters (“Victors and Spoils,” NY Times, Nov. 19, 2002).

 

-                 Accountability:  In the civil service, instructions are passed down a hierarchical chain of command, and all are responsible for fulfillment of the mission of the agency.  “The shadow adds to the mix multiple layers of agents [with] divided loyalties,” between the mission of the agency and profits for the contractor.  “At the very best, the shadow weakens the accountability chain between government and producer; at the worst, it diffuses accountability beyond repair.”  This is especially true if “contractors create independent political ties with policymakers and thus outflank their administrative overseers.”  The goal of public employees and federal agencies is to serve the public.  The goal of corporate contractors is to make a profit.  Public employees have no financial incentive to cut corners or misrepresent results.  Contractors do.  Contract oversight problems in government are substantial.

 

-                 Capacity:  If the agency looses its core capacity (intellectual capital, institutional memory), then who makes decisions, and who oversees the contractors?  The tail ends up wagging the dog.  In the early 90s, the National Academy of Public Administration (NAPA) studied NASA, and found there was doubt that the agency had the technical capacity to make responsible program decisions, manage its mission and oversee its contract workforce.  NAPA also studied EPA, with similar findings: “In many places, the agency’s technical capacity was exactly one person deep.”

 

-                 Flexibility:  With the civil service workforce, employees may be signed work outside their normal scope of duties whenever changing priorities warrant.  With contractors, work outside the scope of the contract requires a contract modification, at an additional cost.

 

-                 Cost:  Government agencies exist to serve the public, and cannot by law make a profit.  Under the civil service model, public employees do the work under the direct supervision of a federal management team.  Under the outsourcing model, federal management is still required, as are contract employees to do the work.  Add to this contractor management and profit for the company.

 

-                 Advocates’ claims of cost savings:  A March, 1990 GAO report took a critical look at OMB’s reported savings and found them to be highly suspect.  The report, GAO/GGD-90-58, is entitled “OMB Circular A-76: DOD’s Reported Savings Figures are Incomplete and Inaccurate.”  It concludes, “Neither DOD nor OMB has reliable information on which to assess the soundness of savings estimates or knows the extent to which expected savings are realized (page 3).”  To give just one example of the inaccuracies, this report looked at “savings” for FY 1986-1988.  “Savings” are defined as the difference between the anticipated cost of the activities (based on the winning bid, therefore excluding any subsequent contract adjustments) and the estimated original cost before the studies began.  DOD reports showed an annual “savings” of about $93 million (page 15).  However, none of the A-76 program costs, including doing the studies, was included in this estimated savings figure.  These costs were estimated to be between $150 million and $300 million per year (page 5).  Because these costs are not counted in the A-76 definition of “savings,” the result is that the “savings” of $93 million really meant a loss of roughly $50 million to $200 million.  While this study is over a decade old, the situation is unchanged today.  In his March 6, 2002 testimony before the Senate Committee on Governmental Affairs, Barry Holman, Director of Defense Capabilities and Management, cited continuing problems with obtaining “reliable estimates of projected savings expected from the competitions (GAO-02-498T, page 7).”  In particular, “DOD’s savings estimates did not take into consideration the costs of conducting the studies and implementing the results (page 9).”

 

-                 Reversibility:  Recommendations were drafted in the early 1990s stating that NASA and EPA were over-outsourced and plans implemented to reverse course and bring core capabilities back in house.  This has not happened.  Given the billions of dollars at stake, and the fact that large corporate contractors have substantial political influence, it is not surprising that it is extremely difficult for an agency to find its way back from the shadow.

 

Over-outsourcing is bad for public employees:

 

-                 Some politicians have maintained that federal workers will not be discarded by “competitive sourcing,” but merely that their jobs will be transferred to the private sector.  Light writes, “There is good reason to believe that the vast majority of those in the shadow workforce receive lower salaries, fewer benefits, and work in more precarious situation that the career civil service employees do.”  This hypothetical transfer from public to private sector is voluntary on the part of the contractor; the “right of first refusal” is administered by the contractor and is entirely at their discretion.  Real men and women who have spent their careers in the service of their country will be discarded without regard to the merit of their work.

 

Conclusion

 

The government does not track the size of its shadow contract workforce.  This has allowed politicians from both parties to take credit for keeping government small by keeping the civil service headcount low and transferring the work to the government’s shadow workforce.  By not counting the shadow, politicians from both parties can score points by being against “big government.”  But the transfer of work from public employees to the corporate shadow does not change the amount of work performed by the government, or of the budget needed to carry it out.  This is nothing more than a shell game that plays the American public for a sucker.

 

The transfer of government work to the shadow is nothing new.  As of 1996, approximately 75% of the business of government had already been transferred to corporate hands.  As a result, many agencies have already lost the expertise and manpower to manage the contractors that have taken over the work.  Services have deteriorated while costs have increased.  What is new is the radical acceleration of privatization under the current Administration.  The current “competitive sourcing” initiative will, unless stopped, accelerate the privatization trend over 10-fold.  Our public institutions are already dangerously over-outsourced, and this accelerated corporate takeover of the business of government may well spell the end of a public service sector accountable to the citizenry.

 

-- Mark Davis

   March 3, 2003