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Letter to the Editor: Oct. 17

Oct. 15, 2011 - 04:28PM   |  
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Cost comparisons

Regarding the Oct. 3 commentary, "">Wanted: Accurate assessment of sourcing decisions":

The Project On Government Oversight report "Bad Business: Billions of Taxpayer Dollars Wasted on Hiring Contractors" urges a governmentwide comprehensive cost assessment model for comparing the cost of service contracts with having federal employees perform the services.

The commentary authors cite a Center for Strategic and International Studies report, wherein they propose a methodology for estimating fully burdened cost comparisons when the government makes sourcing decisions, i.e., whether federal employees or contractors should perform government services.

The flaw in its taxonomy is its failure to address unique costs to the government that result from sourcing government services to the private sector. While the CSIS report is critical of the Defense Department's Directive-Type Memorandum (DTM) 09-007, Estimating and Comparing the Full Costs of Civilian and Military Manpower and Contract Support, the DTM is clear about the nature of those unique costs and that they must be accounted for when estimating the costs for sourcing services to contractors.

The CSIS report acknowledges that estimating overhead costs is the most critical and complex component of any cost estimation model, yet it fails to assign the significant costs generated by the government's extensive systems of procurement, administration and monitoring contract services to the contractor side of the cost comparison balance sheet. It also fails to acknowledge that a significant portion of contracted services are performed on government premises and that consequently, the overhead costs they identify should be assigned to contractor side of the balance sheet.

CSIS' focus on the fully burdened costs to the government only when assessing work performed by federal employees discloses a bias that permeates its analysis and undermines the value of the constructive proposals otherwise contained in its report.

The article asserts that "government workers are more expensive than contractors." A POGO study, of which the commentary is critical, found that, on average, contractors are 83 percent more expensive than government workers. POGO excluded "facilities and materials and supply costs" because the contract billing rates we compared were for work performed on government premises; consequently, the overhead costs accentuated the cost burden to the government beyond the 83 percent we reported.

It is incorrect to assert that POGO used the Office of Management and Budget's 12 percent overhead rate in its analysis. POGO did not include adjustments for foregone tax revenues on either side of the equation because we were not privy to that data.

We can all agree that what is needed is a methodology that reflects true full life-cycle costs and avoids decision criteria that replace empirical evidence with ideological assumptions.

Paul Chassy, investigator, Project On Government Oversight, Washington

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