US Government Pays Contractors Twice as Much as Civil Servants for the Same Work

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Deputy Secretary of Defense Ashton B. Carter receives a briefing on the F-35 Joint Strike Fighter and the F-22 Raptor as he visits Nellis Air Force Base in Las Vegas, Nevada, on Nov. 6, 2013. DoD photo by Glenn Fawcett.

Since the 1990s, the outsourcing of what were once considered to be public services has grown exponentially, while the size of the federal workforce has fallen significantly. The rationale for these deep reductions in the public sector is that private companies are more efficient. The privatizers claim that they can render the same services as civil servants for less, even after making a profit.

Pulitzer prize-winning journalist David Cay Johnston, author most recently of The Fine Print: How Big Companies Use “Plain English” to Rob You Blind, takes a skeptical look at these claims in an article for Newsweek… 

The budget debate now consuming Washington often seems to come down to guns versus butter, or at least its contemporary manifestation, Reaper Drones versus food stamps.

What gets lost in the increasingly caustic rhetoric is just how inefficient the US government is when it spends, especially when it is outsourcing tasks to hugely profitable private companies.

Fortunately, the budget deal just worked out between the White House and Capitol Hill will prevent a government shutdown and all of its attendant global financial inconveniences. But it does nothing to curtail wasteful spending on companies that are among the nation’s richest and most powerful – from Booz Allen Hamilton, the $6 billion-a-year management-consulting firm, to Boeing, the defense contractor boasting $82 billion in worldwide sales.

In theory, these contractors are supposed to save taxpayer money, as efficient, bottom-line-oriented corporate behemoths. In reality, they end up costing twice as much as civil servants, according to research by Professor Paul C. Light of New York University and others has shown. Defense contractors like Boeing and Northrop Grumman cost almost three times as much.

Read the whole thing at Newsweek.

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  • Anonymous

    Privatization schemes were always complete b.s. But they were ultimately forced through by the same people (such as Dick Cheney who helped Halliburton to the trough when he was SecDef and then became its CEO) saying that the federal government was too big and privatization was the solution. What they really meant is that ‘their people’ weren’t getting enough government money. And now it’s clear that they do. Stated concern about budget deficits was pure smoke & mirrors.

  • Anonymous

    Cost plus 10% Bush and Cheney set it up and nobody since has changed it.

  • Anonymous

    Yup. Old news but everyone ignores this simple fact that “fiscal hawks” never tell you. My federal employee wife calculates 30-40% savings if work in her agency were done by civil servants. And just like with Heath Care, the private sector is packed with middlemen taking cuts all around.

  • Anonymous

    Thieves in $5K bespoke suits stealing from all if us. It was better when draftees did these jobs for very low wages but lots of experience. If in war zones they could grab their guns and hit the wall to repel the enemy. Contractors 200K+ / year and you protect them. Terrible trade off.

  • Anonymous

    My understanding is that this is Reagan’s legacy.

  • Anonymous

    And cutting benefit contributions to civil servants is their idea of a cost-cutting solution. Just too cynical to be humorous….

  • user xyyyz

    How can a private corporation which needs a minimum of 10 percent profit, be able to provide services or goods for less than a government agency that has no profit motive? Ask yourself that basic question and the answer is “they can’t”. If you want to pay more go to the private contractor but don’t start talking ‘money saving’ in the same breath because it’s impossible.

  • Anonymous

    When I worked for the Government, contracting out cost between 400% and 600% what we would have spent doing a job ourselves. Of course at that time, you had to go through competitive testing to work for the Government. So it might be a little less now, but I doubt it.
    A good example of how the system screws the taxpayer is the West Coast Dredging Fleet. The Army Corps of Engineers was told to divest itself of its dredging program because contracting the work out would be cheaper. A few cooler heads were able to modify that order so the Government would maintain a token dredging capability for emergencies. In order to keep personnel and equipment operational, the Corps was told to prepare bids on contracts going to private companies.
    When the Corps bids were averaging only 25% of those from the “cheaper” private sector, handicaps were added. The Corps can only dredge during half the year, and every bid must carry at least a 200% added overhead cost in order to give the private companies any chance of winning a bid against them. The handicap bogus overhead has been as high as 400%.

  • Owen Johnson

    Meanwhile, Boeing is taking bids from cities and states to see who will cough up the most to get them to move production of their next airliner from Washington, where they have a trained and experienced workforce already. Profit is more important than quality airplanes.

  • Mary Johanna

    Before G.W.B and Rumsfeld took over the government, there were quality control representative working for the government and checks and balances. Surely you had your crooks and bad contractors in between, but not to the extend as it is today. Now, I see contracting officer and military representatives sucking up to contractors because they know that once they retire their next job is secure. Rumsfeld was the one who pushed for contracting within the military, his words were: If he is not wearing a rifle he does not need to wear a uniform and that is how the mercenaries and other contractors came in and ripped the government off. It has been common knowledge for a long time.

  • Mary Johanna

    Where they have non union workers. What is ironic is that EADS (Airbus) is unionized and doing well. VW union reps from Germany want to bring unions to their US brothers and sisters and the US governor is hindering it… crazy times we live in. Nobody cares about anyone or anybody except for the share holders and how to help them line their pockets. Little do they know that our last shirts don’t have pockets….

  • Mary Johanna

    Actually he started some of it, but under Reagan you still had people with integrity working in the federal government, even republicans were pretty straight when it came to contracting and doing business. Reagan closed a lot of social service programs and that’s why we have so many homeless mentally ill folks now who should be in homes or looked after in some way, many of them veterans. Who really screwed up was GW B and Cheney, they did set it up and brought contractors in, namely Halliburton and the sorts. Terrible things happened down range, buildings build that were never utilized and so on, extreme waste and abuse, whistleblowers punished and without a job now. At one point Rumsfeld flew pallets stacked with US currency shrinkwrapped into Iraq and no one ever knew what happened to the millions of dollars that went missing. Google it. It is my hope that at least the GI’s took part of that for a retirement cushion… Yes, lot’s of corruption, lack of oversight and ignorance. They thought the oil in Iraq would pay for it all… now China is getting the oil. Now corruption is so ingrained it is horrible. Read the military papers, when new uniforms are issued and material is substandard and soldiers pay high prices for them, public private housing ventures it is all rigged.

  • Anonymous

    Finally, someone else that is aware of cost plus… But it’s been around far before Bush. What people are not understanding is that a) government civilians ARE consuming evermore of the defense budget b) competition is good / drives down cost c) these are ADVANCED TECHNOLOGICAL SYSTEMS (there’s lots of risk mitigation involved) d) the problem is moreso that company A will win the bid over company B because it bid less but often times will fail to develop the system within budget or schedule. There is no easy solution… 1st, sure

  • Anonymous

    Other issues involved in privatization are no-bid contracts and the fact that contracts must be renegotiated after 3-5 years, which add costs to the process. Then there is the cost of transitioning from one contract to another contractor when those contracts expire.

  • Anonymous

    The decision to privatize was political, not fiscal. Companies that benefited took care of the politicians who made the decision to privatize. Civil servants are tasked to justify their choices weighing the public good. When privatized the foundation is maximizing profit of the company. So, it is also the way to break the hold of profession on decision-making. At the state level we see another aspect of that when professions (social workers and public health workers) are replaced by MBAs. The reasons to go to contracts at the extent that it took place was political.

  • Daniel Dannen

    Private enterprise may be efficient in the sense that it keeps its own costs low (labor, materials, etc), but that doesn’t mean the consumer will pay less. It means the CEO will pay himself and the shareholders more.

  • Jeffrey William Lynch

    Somehow in our culture, if you think that cutting any part of anything related to defense or even question the cost of a 800 dollar hammer that you could buy off the shelf for say 30 dollars at Home Depot or Lowes, that you are somehow un-patriotic or against America. If you showed this article to a typical Tea Party member or another conservative group that is angry with John Boehner for reaching a compromise with the Democrats on the budget, most would turn red in the face and tell you, “You cannot cut defense! Cut everything else!” I say make the Defense contractors cut their costs and reach some sort of compromise. Everyone must give a little. Thanks for reporting on this topic.

  • Anonymous

    it is an interesting situation. The military trains soldiers to repair and maintain aircraft, planes and helicopters, then they have private sector contractors paid to do the work while the trained soldiers pick up cigarette butts on the base. Soldiers are trained to cook, sent to Afghanistan to cook, then sit and watch while contractors prepare meals. Soldiers at FOBS in Afghanistan sit around while Afghan contractors are paid to stand guard. The military has lots of money, 2-3 people to do one trainied soldier’s job, while he waits to be shot in battle.

  • Steve in VA

    Did they factor in the full “life cycle” cost of a federal employee? Drawing a pension for 20 to 40 years, plus the health benefits in retirement, would add a substantial amount to the true cost of a federal employee compared to a contract employee.

  • Anonymous

    So after working 25-35 years people should retire without pensions even when they pay into the pensions? Private industry can not compete with public service if it takes care of its retired workers so they shouldn’t do so? Use up those resources and then throw away what is left of them

  • Anonymous

    are these no bid cost plus contracts like in Iraq?

  • Anonymous

    Thank you for bring the fallacy that “privatization” is more cost efficient. We are seeing, across the various government agencies, that corporations are not living up to their “hype”. Halliburton, formerly called “Blackwater” are two excellent examples of corporations gone rogue, once they receiver their no bid contract, and taxpayers blank check.

    Private prisons are another example of this waste, no say nothing of how amoral and unethical they are.

  • Cynthia Davis

    One word describes how well and for who U.S. contracting out works – SNOWDON

  • Anonymous

    Unsurprising to anyone who’s been following the globalism shift for the last 30 years. Selling off state assets to the private sector is just one component of the elaborate redistribution of wealth upwards.

  • Anonymous

    The system is flawed as it improperly incentivizes with subsidies and tax credits and allows government contracts to be awarded without stipulation that the companies receiving the contrast demonstrate broaden individual employee ownership.

    Tax incentives and favored contracts at the federal, state and local levels are supported on the theory that redistribution and work contrast will create jobs. The reality is that federal, state and local tax incentives (giveaways) simply redistribute wealth upward by bolstering business ownership values without creating jobs. Such “giveaways” are a testament to the benefits of being politically connected (“crony capitalism”). Such giveaways are in the form of tax credits or effectively cash grants and subsidies for politically favored business owners who can then effectively reduced their business taxes to zero. Likewise contracts are awarded in the name of “job creation” rather than “ownership creation.”

    While tax and investment stimulus incentives are excellent tools to strengthen economic growth, without the requirement that productive capital ownership is broadened simultaneously, the result will continue to further concentrate productive capital ownership among those who already own, and further create dependency on redistribution policies and programs to sustain purchasing power on the part of the 99 percent of the population who are dependent on their labor worker earnings or welfare to sustain their livelihood. By stimulating economic growth tied to broadened productive capital ownership the benefits are two-fold: one is that over time the 99 percenters will be enabled to acquire productive capital assets that are paid for out of the future earnings of the investments and gain greater access to job opportunities that a growth economy generates.

  • Gramerck

    I don’t see them putting any of that profit back into the economy. While those drawing a pension would certainly boast the Economy.. Contract employees are drawing welfare to sustain themselves on the low wages, how does this help? Just imagine what those contract employees will cost the country, to support them in their old age and we will have to, mean while the rich are laughing at the fact you bought into this foolishness.

  • Anonymous

    You are correct, NOLA. Reagan said government was the problem. So began privatization and deregulation. When he fired the air controllers, he set the tone for all the union busting that has occurred since then. Now over thirty years later those MBAs make all the decisions in favor of business. It’s why we have corporate fascism closing in for a complete takeover.

  • obbop

    The USA economic system is a HUGE scam and the ongoing class war continues.

    What will be the spark that ignites Revolutionary War Two?

  • Anonymous

    Some contractors take it a step further and outsource their own work to subcontractors at much higher cost. I work for a contractor that does that. The taxpayer pays more and the government should crack down.

  • The surreal McCoy

    So what’s new? And.. what are you going to do to change this?

  • hinchlnt

    Some of the worst things I have ever heard of was the privatized prison scheme. We should be putting criminals in jail based on evidence, conviction and societal norms. The worst thing imaginable is to lean on the jury to give the privatized prison industry a little helping hand. And then there was “cash for kids”, a prankish teenager created a fake MySpace wall for a teacher she disliked, and went to prison for it, a private prison it seems that was passing money to the judges to sent them more inmates.

  • Lance Edward Abbott

    The question is: if the government was given the authority to construct entities as big as these corporations, capable of accomplishing the same things, would the efficiency of those entities be better than the efficiency of the crony capitalist entities currently wasting the tax payers dollar? There is no civil servant corp that I am aware of, that has the capacity to do the things the Boeing does. So unless you can show me a side by side, apples to apples comparison, this contention falls short of having any practical application.

  • Anonymous

    Halliburton did that after Katrina. They got the contract to do clean up/repairs on a LA navy base. One of the sub contractors used illegal aliens, kept them basically prisoners, locked too many to a trailer on off hours, then didn’t pay all of them for all the work they did.

    How does privatizing work on a navy base, knowing the work will be subbed out to the lowest bidder, keep our military safe? But Dick Cheney keeps getting his Halliburton checks.

  • Anonymous

    I believe Halliburton was never called Blackwater. One is an oil company, the other a band of mercenaries now called Xe.

  • Anonymous

    Plus the payouts in form of all the campaign donations to congressional candidates to keep the gravy train coming to private enterprise.

  • Darty

    never saved a dime using contractors, just used them to get around hiring limits

  • Stewart Moore

    Big banks eating up taxpayer subsidies isn’t a new story. We heard a lot about the hundreds of billions of dollars doled out to Wall Street in the Troubled Asset Relief Program (TARP). And a May analysis by Bloomberg News estimated that the six largest banks alone had scooped up over $100 billion more in subsidies since 2009.

    But a new study finds that we’re also subsidizing their profits by keeping their low-wage workforce out of poverty. Danielle Douglas reports for The Washington Post:

    Almost a third of the country’s half-million bank tellers rely on some form of public assistance to get by, according to a report due out Wednesday.

    Researchers say taxpayers are doling out nearly $900 million a year to supplement the wages of bank tellers, which amounts to a public subsidy for multibillion-dollar banks. The workers collect $105 million in food stamps, $250 million through the earned income tax credit and $534 million by way of Medicaid and the Children’s Health Insurance Program, according to the University of California at Berkeley’s Labor Center.

    The center provided the data to the Committee for Better Banks, a coalition of labor advocacy groups that published the broader study, to be released Wednesday, on the conditions of bank workers in the heart of the financial industry, New York. In the that state alone, 39 percent of tellers and their family members are enrolled in some form of public assistance program, the data show.

    “This is the wealthiest and most powerful industry in the world, and it’s substantially subsidized by our tax dollars, money that we could be spending on child care or pre-K,” said Deborah Axt, co-executive director at Make the Road New York, one of four coalition members.

    Profits at the nation’s banks topped $141.3 billion last year, with the median chief executive pay hovering around $552,000, according to SNL Financial. In contrast, the US Bureau of Labor Statistics pegs the median annual income of a bank teller at $24,100, or $11.59 an hour.

    The report comes amid growing awareness of the high costs tax-payers pay for low-wage jobs in the fast food and retail industries. On Thursday, fast food workers in 100 cities will participate in one-day strikes demanding a living wage and an end to workplace abuses.

    Those actions follow dozens of Black Friday protests at retailers across the country. Meanwhile, a growing movement is achieving victories in living wage campaigns across the country.

  • Anonymous

    This is the greatest sham committed by the so called “fiscal conservatives”. This is a strategy that has profited politicians and their buddies for decades and not just in the military segment. Just look at States led by the likes of Scott Walker that went on outsourcing binges, laying off government maintenance and security workers and replacing them with private contractors, lured by initial cheap bids (if they actually spent to the time to do bidding), only to discover years later that rates skyrocketed to over three times the amount they would normally spend on government employees. Or States that created the private prison industry; all reports show these private enterprises cost States billions more in the long term, while providing less service and less security.

    But this is appealing to Republicans because they don’t have to think, it’s easier to just hire their cronies than to have the expertise and oversight on staff. Much like their other mantra “private industry can police themselves”. From healthcare insurance to military contracts, this blind faith in private contractors not only corrupts politicians but bankrupts the American public.

  • GregoryC

    The greed isn’t limited just to Republicans. There’s no decline in lobbying among Democrats. Or Independents.

  • GregoryC

    September 10, 2001, Rumsfeld said $2.3 trillion missing from Pentagon. This theft has been going on longer than the beginning of the Shrub presidency. Panetta said this year that the Pentagon still couldn’t face an audit. I don’t think it has been successfully audited in two decades. If ever.

  • Anonymous

    Absolutely true, but the trend in government outsourcing as the solution to budget problems or perceived reduction in government employment is a particularly Republican strategy.

  • Stop Trolling

    “no say nothing of how amoral and unethical they are.”

    Bad grammar or psych-op directive troll? Who confuses Halliburton and Blackwater? BOTH corrupt for sure.

  • Anonymous

    The rationale for these deep reductions in the public sector is that private companies are more efficient.

    And the reason is that it was a way to attack one of the remaining segments protected by unions.

  • Anonymous

    Yes. Excellent point. Nothing stacks up against Halliburton’s no-bid contracts… I maintain that Reagan set the stage for this, and a host of other “trickle-up” policies described as “trickle-down.”

  • Anonymous

    I worked as a civil servant for a brief time and then for a government contractor. But most of my career I worked for private industry.

    I can’t think of anything I’ve ever experienced that would make me think that private industry is any more efficient than the government at actually doing things. My overall impression is in fact quite the opposite.

  • Anonymous

    Is there anything left of government to take by outsourcing?
    Who needs Congress if it is all outsourced?

  • Tim Jones

    Oh boo hoo….if it’s so easy, why aren’t more people doing it? Here are the general requirements to work in the intel field as a deployed contractor…4-6 years active, minimum, with a past deployment to a combat zone while in the military, active TS/SCI clearance, associates/bachelors degree, and demonstrated knowledge. All of this can be found via google.
    Most contracts are up to a year deployed. Not everybody is content with doing the same in uniform, over and over again, while dealing with military commitments aside from the job, high stress on family for only $25-$40k a year. It’s called career progression. Unfortunately, many of the intel sections in the military (even those deployed) just aren’t that experienced, curious, or good at what they do. It isn’t their fault, but there is a reason why these contracts are in place. As for civil service/military pay, well, there’s a reason why they call it a service. Anybody that becomes a civil servant or military member for money aren’t in the right career field. Just a fact of life.

  • Anonymous

    All this may be old news to us, but to many still watching certain news organizations, this is counter to KNOWN fact, simply not possible…

    I AM grateful that the word, the truth is slowly making its way out there.