In his Oct. 28 Federal Times commentary, J. David Cox Sr. asserted that federal employees cost less than contractors and asked why the Defense Department isn’t therefore “systematically substituting civilian employees for contractors.” Answer: Because the assertion is both wrong and illogical.
Not only does the objective data lead one to a different conclusion about relative costs, cost is not the only consideration in determining who should perform work. Indeed, even if his assertion regarding costs were correct, Cox completely ignores the tenets of sound human capital planning, which must account not only for personnel costs, but for the costs of permanent versus temporal requirements, the realities of the talent marketplace, the flexibility of contracted work and more. Just as some work, no matter the costs involved, must be performed by government personnel, there are also many cases where the private sector is simply the better option.
Even in his argument about cost, the federal employee union chief relied mostly on estimates from former Defense Secretary Robert Gates that Gates later acknowledged were wrong (resulting in his halting his insourcing initiative) and on off-the-cuff remarks from two DoD officials. Hardly an evidence-based conclusion. Further, he fundamentally misinterpreted the Government Accountability Office’s report on the new Defense Department instruction that will guide future cost comparisons.
Cox assumed that GAO’s conclusion that there is a lack of data supporting the current cost comparison process means the estimates of in-house costs are always too high. But GAO analysts reached no such finding. They simply pointed out that the department’s instructions do not provide an accurate overhead calculation. They made no estimate or suggestion as to what would occur if accurate in-house costs were used. Cox also decried the Office of Management and Budget requirement that in-house cost estimates include a 12 percent overhead factor because government systems do not accurately calculate its actual overhead. Ironically, Cox’s organization has continually argued that there should be no overhead factor for government work, even though most objective analysts agree that even the 12 percent factor is low and that it is highly improbable that the government is so efficient that its overhead costs are just a fraction of those incurred in virtually every other institution.
Cox’s selectivity is also evident elsewhere in the article. He fails to acknowledge key shortcomings GAO identified in the new instruction, such as its use of published General Services Administration Schedule rates even though such rates are routinely and significantly discounted through competition. He also ignores GAO’s criticism that the instruction lacks implementation guidance and does not accurately capture such basics as in-house training costs. He even suggests GAO “implicitly rejected” a Center for Strategic and International Studies report that deconstructed DoD’s costing methodology. In fact, GAO implicitly commended the CSIS report by praising DoD for making a number of improvements to the methodology, such as accounting for foregone taxes, which were originally CSIS recommendations.
Finally, there is an overarching irony to Cox’s argument that is often overlooked. His organization has long maintained, correctly, that there is a significant pay gap between the public and private sectors, particularly for highly sought after technical skills. Yet, he also argues that personnel costs alone should determine who does the government’s work. Is he really suggesting the government should shortchange itself and the taxpayer by not accessing the talent it needs because of that gap?
Cox is absolutely right that “decisions about who performs work must be based on a rigorous methodology.” Workforce costs are clearly a key — but not the sole — component of any smart human capital planning methodology. Unfortunately, even there we still have much work to do to arrive at a cost comparison process that provides the requisite accurate data. Instead, despite a plethora of objective analyses that show how that can be achieved, the “debate” remains dominated by dogma and presumption, and by decisions based on weak and incomplete data. That is an outcome we cannot afford. The better answer: Get the analyses right and let the chips fall where they may.
Stan Soloway is the president and CEO of the Professional Services Council, a trade association representing over 370 professional and technology services firms.