America’s $320 Billion Shadow Government
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The Fiscal Times
September 28, 2011

As the congressional “Super Committee” seeks to slash the deficit, Washington’s ever-expanding “shadow government” looms large as a target. Although the Tea Party and deficit hawks frequently complain about a bloated federal workforce, the real growth has come within the ranks of federal contract workers, who usually get scant scrutiny.

While the full-time civilian federal workforce has remained relatively static at 2.1 million for the past three decades, a leading expert estimates there are about 7.5 million government contract workers, or more than three times the number of regular government workers.

Federal officials have long justified this monumental outsourcing of jobs as essential to compensate for a lack of in-house technical expertise in a wide range of areas. But the government has done relatively little to monitor and assess the work of the legions of federal contract workers. Meantime, the Obama administration said it has begun trying to reverse the tide of  “shadow” workers.

“[The] American people are right to worry about fraud and waste and abuse,” New York University professor Paul Light, an expert on the federal government, declared in a report released last summer. “Much more of the government’s work today is outsourced, without clear guidelines as to the net benefits or cost of such an approach.”

Light estimated that during the Bush Administration, the federal contract workforce jumped nearly 75 percent, from 4.4 million to 7.6 million. More than two years into the Obama administration, Light still puts the headcount at approximately 7.5 million.

Alan Chvotkin, executive vice president of the Professional Services Council, which represents businesses that contract with the federal government, said his group regards Light’s figures as “astronomically high” and inflated by a methodology that counts the indirect as well as direct economic impact of federal contracts.

But there are currently no official numbers on the size of the contract workforce; the Office of Management and Budget is moving to comply with recent congressional mandates that such figures be maintained. And overall size is scarcely the only controversy surrounding the mushrooming contract workforce in recent years.  

Approximately $320 billion – or about 60 percent of all federal dollars spent on contracts for goods and services – went to support the contract workforce in fiscal 2010, according to the OMB. To put that figure in perspective, it is about 40 percent higher than the total compensation paid to in-house federal civilian employees last year. Moreover, government contractors often are paid more for their services than the roughly corresponding full-time federal worker.

The government is buying contract workers ranging from information technology specialists at Washington agency headquarters to security officers in Iraq and Afghanistan to nuclear scientists at Energy Department laboratories across the country. Thousands of these workers are employees of technology and engineering behemoths such as Lockheed Martin Corp. and Bechtel Group. Lockheed, with headquarters in the Washington, D.C. suburbs, ranks No. 1 in both military and civilian contracts, according to the latest available figures.

The Obama administration boasts of halting what OMB Deputy Director Jeffrey Zients recently termed “uncontrollable growth” in contract spending during  President George W. Bush’s eight years in office, when such expenditures increased by an average of 12 percent a year. But these moves by the Obama administration have not been enough to satisfy critics.

A report released this month by the Project on Government Oversight (POGO), a nonpartisan watch dog, asserts the federal government would have saved significant funds by using in-house employees rather than private contractors in 33 of 35 occupational classifications reviewed.

In addition, budget figures recently analyzed by POGO indicate the Pentagon alone spent more than $200 billion on contractors during the 2010 fiscal year – $50 billion more than the cost of all uniformed personnel employed by the Defense Department.

But others suggest such figures ignore the reality that the federal government often needs assistance on projects for weeks or months rather than years. In these cases, it makes sense to turn to contractors rather than hire permanent in-house employees, they say.

“My experience is that usually a federal agency hires a contractor when they don’t have the in-house expertise to do something themselves, or they conclude that they’re going to need specialized expertise, but only for a relatively short period of time,” said Scott Cameron, a 20-year federal employee who now works for Grant Thornton, a global audit, tax and advisory organization.  Cameron is a director in the company’s Global Public Sector division, which, like a multitude of other firms, provides expertise in financial, human resources, and information technology management to the federal government.

Cameron, a top manager at the Interior Department before joining the contract workforce, observed: “There are basically two types of consulting firms: There is one, like Grant Thornton, which aims to solve a specific problem in a particular agency in a carefully delineated piece of time, and then go find another problem at another agency and solve that.”

“The other model is sort of the staff augmentation model, where the contract employees are virtually indistinguishable functionally from the federal employees,” he said. “And they’re sitting there at adjacent desks year-in, year-out, and, for all intents and purposes, could be [federal employees].”

It is the latter model that has stirred particular controversy, especially among watchdog groups that question its cost and federal employee unions that see their members being deprived of potential job opportunities. While some high-level federal managers say it is easier to get rid of poorly performing workers if they are private contractors rather than federal employees, others contend that overreliance on contractors can leave federal agencies without critical in-house expertise.

Dan Gordon, who heads OMB’s Office of Federal Procurement Policy, said that lesson was driven home recently during one of his recent appearances before a group of federal workers.  “One of the federal employees there said, ‘Dan, there is no federal employee in our agency that understands our IT system. We’re completely dependent on contractors,’” Gordon told The Fiscal Times. “That’s an example of what is probably a critical operation in that agency, where they need to take steps to make sure there is federal employee control of those operations.”

Earlier this month, Gordon’s office issued final guidelines on what constitutes “inherently governmental” tasks that must be performed by in-house federal employees. “There were situations in which people were turning to contractors to do… things like writing the statement of work for a contract, and then awarding that work to that very contractor,” Gordon said. “Those were situations that were simply intolerable.”