Are Private Contractors the New Federal Workforce?

Last Sunday was graduation day at Duke. In our Master of Public Policy program, over half of the graduating students are employed, and over half of those employed are going to work for government consulting firms. Their salaries are about 20% higher than those who are working in government jobs, and they have been impressed with the training and mentoring available to them in the private workforce. They also talk a lot about the variety of possible assignments, as these are Millennials who want continued new challenges and absolutely no routine.

These are good jobs that make it possible to live comfortably in DC and pay off student loans. Students who takes these positions are smart and polished. But most of them came to Duke interested in working in the public or nonprofit sectors. In addition to compensation and professional development incentives, getting recruited and hired by a federal consulting firm was far easier than submitting endless applications to USAJOBS, networking with every federal employee they can find, and being frustrated when no replies are forthcoming.

A couple of my students will even be working in agency offices alongside federal employees, doing the same work for higher salary and, I imagine, a higher cost to taxpayers, since private contractors come with overhead charges. Smart federal managers have figured out how to skirt the cumbersome hiring process by hiring employees through designated contractors. Who can blame them?

According to Project on Government Oversight (pogo.org), federal contractor compensation is 1.8 times the cost of federal employees’ compensation and benefits. NYU Professor Paul Light has also expressed concerns that the federal contractor workforce is possibly up to 3 times the size of the federal workforce. Do the math, it’s amazingly expensive. But if the political will were available, costs could be contained. If OMB could create a cost comparison model for evaluating bids and contracts for agencies to use, Congress could impose some cost restrictions on contractors.

More important to me are the non-financial implications of increasing reliance on non-federal employees to do the people’s work, such as

  • erosion of in-house capacity, as federal employees become contract managers rather than subject matter experts and problem-solvers;
  • loss of institutional memory, when consultants build expertise and program knowledge then move on to another project;
  • lack of accountability and mission orientation, as consultants must worry about their company’s bottom line as much as they worry about making government better.

Can the hiring process be made easier and more transparent, or do we succumb to the continued use of private contractors? Is it better to try to contain the costs of contracting with rules and guidelines, or just make it easier to hire a federal employee who will become an expert, stick around, and maybe even change the world?

Donna Dyer is part of the GovLoop Featured Blogger program, where we feature blog posts by government voices from all across the country (and world!). To see more Featured Blogger posts, click here.

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David B. Grinberg

Nice post, Donna. I share your concerns about reliance on federal contractors in lieu of career civil servants. Moreover, I think it’s unfortunate that college grads are apparently having such a difficult time in being hired for federal jobs, as you state.

Future public employment prospects should get better, not worse, for Millennials. OPM and other federal employment experts estimate there will be a forthcoming “retirement tsunami” and related “brain drain” within the federal workforce as Baby Boomers — and even some Gen Xers — depart.

Moreover, as the public sector work culture slowly but surely adapts to the modern-day work environment of the private sector, more and more college grads will have much needed high-tech skills which should position them well for federal jobs.

A few other points:

1) I highly doubt federal employee unions and friends of feds in Congress will ever allow contractors to take over the federal workforce. In fact — while I’m no contracting expert — my understanding is that there are already pending proposals in the Executive Branch and Congress to limit contractor pay via strict caps.

2) While some changes to streamline the federal hiring process have already been made, you are correct that much more needs to be done to keep pace with the private sector. I would hope that the federal hiring process comes closer to resembling user-friendly job sites like Monster, CareerBuilder, etc.

Let’s hope for the best!

Earl Rice

Are contractors the new Federal Government. I think not. Being in the Federal Government has it’s privileges. Regardless of what folks scream, the retirement is good. The security is high (during all the budget cuts last year only 1 person was RIFed, only 1, and that was after all the cries that the sky was falling and tens of thousands of government employees would be RIFed), and your work is not tied to a contract. Here’s the problems with contractors. I grew up near a Boeing Plant. When they would get a contract, everyone was at work making the big bucks. When the contract was over, they were in the unemployment line until the next contract was won. The net contract could take months, or years.

Federal Contractors come and go. It’s either feast or famine. And, it goes in cycles. It’s all budget driven. I work in a field that is inherently governmental and cannot be contracted out. Use of contractors is supposed to be for projects of less than 5 years durations, or for projects the government cannot perform themselves. Last year, the number of new contracts dried up. This year they are coming back a bit. But I wouldn’t expect that to last indefinitely, or at least not for 20 or 30 year career. Personally, I think this year with contracts coming back as a fluke. And, who knows what will happen this Election.

When the Army did its force reduction of Installation Command, no new contracts were let (and let’s face it, the acquisition processes aren’t exactly perfection….or fast). And, they were told, and it was made very clear, that absolutely none of the position reductions would be back filled by contractor(s). The explanation was this was all budget driver/money driven. Also, a couple of years ago, there was a push by Congress to look at the cost of contractors. And, they found that contractors were costing more than federal employees, thus the fad at the time was to examine what the contractors were doing and convert the work/positions to Civil Service (which most of the contractors weren’t high enough on the preference order to get hired). Likewise, after the fiasco of the Affordable Care Act web site (and many of the State sites), the general public is not looking at contractors very kindly.

The Government hiring processes are the way they are based upon the rules of law (Title 5 USC). The laws are flushed out in 5 CFR. But when you compare 5 USC and 5 CFR, you will find they are in direct correlation. Every aspect of the recruiting and staffing process is regulated by law. So, what does it take to change 5 USC? Well, you get those folks in that big domed building in DC to write bills to change the laws (oh, and have people from both parties to agree….that a slim chance…my own comment/perception), and then the guy in that little White House on Pennsylvania Ave to sign those bills into law. There are some exceptions to 5 USC. Such as the Veterans Health Administration had special personnel systems for medical professionals under 38 USC (though their systems get bogged down because of all the extra requirements for credentialing and pay setting boards for the medical people). CIA, NSA, and FBI are for the most part outside those laws (they have their own). The DOD Research Laboratories also have “demonstration projects” where they operate outside the normal rules for Title 5. Thus, the chances of changing the laws governing the normal competitive service under Title 5 are doubtful at best. Half the people in government don’t want it changed, and none of the Government Unions want it changed. So unless you want to be a Special Agent, Operator, or work for NSA, you’re stuck with the Title 5 USC processes (unless you have a Masters or a PhD in STEM). I think for the here and now, we are more or less stuck with the status quo.

Edward Frank

Great post. While I do believe that there are some areas of improvements that should be made in the federal Gov hiring process…….I missed out on so many good candidates due to the cumbersome hiring process; however, there are many functional areas that are inherently governmental in nature and cannot (and should not) be outsourced. This is a sensitive area for the Federal Gov and we fight this battle many times in the contracting process.

Ann Ligi

I would like to give you a different take on being a government contracted employee. It is not just federal government feeling the pains of contracting public services – I am coming up on 14 years working in a state human services program. I was recruited to set up quality management in a state operated facility for people with special needs. There were no job classifications in their state civil service with expertise in quality improvement so a group of us were brought in. I was recruited based on my expertise in public health and quality management.

1. HR is the pits: I am on my 4th contract – having just transitioned and it was the worst, most disorganized and unprofessional experience to date: businesses that win the contract charge hourly rates for every hour we work – the hourly rate includes our compensation – so businesses try to maximize their profits by giving us less and every new contract we start out as entry level employees – having to fight for benefits and needing to accrue paid time off and hope we have enough to cover emergency time off or illness – no vacations for us. It is a grueling, stressful process months long – good people who can leave for something better.

2. Counter-productive work culture: We contracted staff refer to ourselves as wage slaves, indentured servants, the have-nots in a world of haves: we work alongside state employees. Oftentimes we are “supervised” by state employees that have less expertise, or no knowledge or experience. We are not permitted to professionally advance within the system – I’ve seen state employee staff with less knowledge, mediocre work ethics, or minminal skills shoot past me like a rocket only because they were the privileged state employees. Contracted staff are treated like second-class employees within an environment fueled by state employees’ disdain for contracted staff who “steal their jobs”…the disdain comes out in the “supervision”…they can’t criticize the quality of the work – they don’t understand it so we are subject to “why did it take three hours for your doctor appointment” types of supervision. The work culture is dysfunctional, morale is low among all staff; contracted staff can only make recommendations and suggestions – we cannot supervise state employees so we need to be careful how we guide staff to move the system forward. Extremely frustrating for professionals.

3. Is privatizing public services (contracting government staff) really cost effective? There is no accountability, transparency or oversight to this process. When I asked, the Department of State contact advised that no one tracks how many contracted staff there are in the state workforce. The past 2 governors have told taxpayers they have reduced the workforce (state employees) but they haven’t told the whole truth about how many (higher cost) contracted staff there are.

4. Political favors tool. This fourth contract is the first contract (for me) where the state awarded the contract to a business OUTSIDE of the state – a contract paid for by taxpayers expecting public services in return. Instead tax dollars spent outside of the state supporting a business that does not return funds in the form of corporate taxes to the awarding state. Corporations pay taxes in this state so that revenue is lost to the state treasury, and less face it – businesses are in business to, well, you know, make money!!

Further, no entity has done an evaluation to determine the quality of the outputs or outcomes of these contracts; no entity has done a cost-benefit analysis. The idea that privatizing through the contracting process is cheaper in the long term is anecdotal at best with nothing substantive to back up this claim.

Note – it is considered cost effective because the state doesn’t have to worry about pensions, or health insurance for retirees.

What cost in the here and now for the contract deliverables? Contract monitoring by state employees is focused on did you sign in and out when you were supposed to, work your full week, and get permission from me to travel to the meeting I called requiring you to attend before I approve your timesheet. No focus on work products, quality of work, productivity, etc.

It’s a sham – whoever dreamed this up was probably awarded the first “money-saving” [not] contract.

You are probably wondering why have I stayed here so long?

  1. I was told, as part of a group, I would be made state complement. Somehow I slipped through the cracks while the rest of the cohort were made state employees.
  2. There is SO MUCH work to do!!! My expertise is badly needed if leadership only knew how to use it.
  3. I keep my focus on the people served – after all, I am a public servant – not a bureaucrat!!


Dale M. Posthumus

No, contract workers will not replace Govt workers. Unfortunately, once again, people try to argue hiring contractors is much more expensive than hiring govt employees. There are many studies, most not well done (such as POGO’s), that seek to demonstrate these cost differences. They disagree. Most compare apples and oranges. For example, POGO compares the salary and paid benefits of Federal employees against the GSA Schedule rates for same or similar job descriptions/GS level. The mismatch is that Schedule rates are ceiling rates and are almost never used in actual competition. Companies are encouraged by the Govt to discount those rates; they need to if they want to address the competitions’ pricing. GSA rates include the pay and benefits for the worker plus overhead, G&A, ODCs and profit. There have been only a few modest attempts to calculate the overhead, G&A, and ODCs associated with Federal employees. Training, HR, accounting, recruiting? These need to be added to the Fed GS pay scale to get a fairer picture.

An advantage of Federal employees can be institutional knowledge because the Federal workforce is far more stable. But that stability also contributes to problems for potential and new employees — no place to go, in or up. An advantage of contract employees can be new blood can be brought in to increase the diversity of viewpoints to solve problems and carry out a mission. But, that churn can be negative because of the possible need to train new people each time a new contractor may be applied to the same contract.

An advantage of Govt employees can be that stability can encourage focus on the mission when people do not have to worry about losing their job tomorrow. But, this can be a disadvantage as it becomes difficult to remove underperforming or unneccesary staff (bone yards, etc.). An advantage of contract employees is that they can be brought in for a project, and let go when the project is done. It also allows for the ending of a contract tomorrow if the Govt is unhappy with contractor performance. It can be a disadvantage because contract employees generally are not particularly loyal to a given contractor, constantly looking for the next contract.

My point is that both have much to offer to this business of govt. I can give you anecdotes of poor performing govt agencies/people. You can surely give me many examples of bad contractors. We could also provide many examples of good agencies and good contractors. We have to stop this “us vs. them” attitude.

I do believe the biggest impediment to Federal hiring of Millenials is the cumbersome hiring process, followed by the cumbersome HR system that makes movement back and forth bewteen public and privates sectors very difficult.

BTW, my son, a very good programmer and web developer, wants nothing to do with contract work or govt employment. He dislikes the instability of contract work and dislikes the slow pace of technology adoption in govt work.

There is much more here to address. Maybe I’ll come back to it tonight.