Recently the Government Accountability Office (GAO) issued a letter to Congress (GAO-10-266R, Warfighter Support) comparing the cost of using contractors versus the cost of using Government employees in military support operations.  As everybody (including GAO and Congress) knows, at this point the DOD is almost entirely reliant on contractors to support its in-theater operations.  Regardless of whether you think that’s a good or bad thing, it’s an uncontroverted fact.  More recently, DOD has announced its intention of “in-sourcing” some functions currently performed by contractors, gearing up to hire as many as 20,000 new employees. 

We recently posted an article on “contrarian” views published by the Lexington Institute.  The author, Dr. Loren Thompson, asserted that adding more positions wasn’t the right answer.  In summarizing Dr. Thompson’s thoughts, we wrote—

Adding more acquisition, audit, and program management professionals to DoD’s ranks … will compound the problem. … Dr. Thompson notes that those new heads will take additional funds—not just to cover the costs of salary and benefits, but also to cover the costs of training, equipping, housing and supporting them. As Dr. Thompson notes, ‘When you add up all these costs, the long-term burden of taking on 20,000 new acquisition professionals will be over $80 billion -- which just happens to be the projected cost of buying a replacement for the Trident ballistic-missile sub.’

So when GAO’s analyzes the relative cost of hiring contractors versus hiring Government employees, it is relevant to our interests. 

The GAO “report” (we hesitate to call it a report because it is not in the usual GAO report format) started off by noting a 2005 Congressional Budget Office (CBO) report that concluded “over a 20-year period, using Army military units would cost roughly 90 percent more than using the contractor.”  But it also noted a 2008 CBO report that concluded “for the 1-year period beginning June 11, 2004, the costs of the private contractor did not differ greatly from the costs of having a comparable military unit performing similar functions.”  Accordingly, the results of this GAO analysis would be an interesting addition to the history of the topic.

The GAO next notes that DOD was unable to provide it with sufficient information to conduct a meaningful analysis, so it was forced to look only at the State Department’s use of military contractors.  While that’s better than nothing, it is disappointing that GAO couldn’t get the necessary DOD information that would have permitted it to really add to the on-going debate on the subject.

GAO reviewed four task orders from the State Department’s Worldwide Personal Protective Services (WPSS) II contracts and one contract for Baghdad embassy security.  As GAO reports—

Our comparison of likely State Department costs versus contractor costs for four task orders and one contract awarded by the State Department for security services in Iraq showed that for three of the task orders and the contract, the cost of using State Department employees would be greater than using contractors, while the State Department’s estimated cost to use federal employees was less for the other task order. For example, using State Department employees to provide static security for the embassy in Baghdad would have cost the department approximately $858 million for 1 year compared to the approximately $78 million charged by the contractor for the same time period. In contrast, our cost comparison of the task order for providing personal security for State Department employees while in the Baghdad region—which required personnel that have security clearances—showed that for this task order, the State Department’s estimated annual cost would have been about $240 million, whereas the contractor charged approximately $380 million for 1 year.

(Emphasis added.)

So in three of four contract scenarios evaluated, using contractors actually saved the State Department money.  And not just a little bit of money—GAO reported that use of Government employees was more than 10 times more expensive than using contractors.  Moreover, where use of Government employees would have been cheaper, GAO noted that “because the State Department does not currently have a sufficient number of trained personnel to provide security in Iraq, the department would need to recruit, hire, and train additional employees at an additional cost of $162 million.”  In other words, when one adds the additional $162 million in government costs to the State Department’s estimated annual estimated cost of $240 million, one gets $402 million versus the contractor’s charges of $380 million—i.e., the contractor is marginally cheaper.  To sum up, GAO found no instance where use of State Department employees to replace contractors would result in any cost savings to the U.S. Government or to the taxpayers.

What drove the Government’s costs?  GAO reported that—

… over one-half of the State Department’s estimated costs for deployed employees were to cover costs required to sustain the employees overseas. The State Department’s estimated cost to provide security included components such as salaries, benefits, cost of living allowances and overtime, overseas costs, and other support costs associated with deploying and sustaining U.S. citizen employees overseas. Overseas costs included things such as furniture, furnishings and equipment for office spaces and residences, maintenance and repair of living quarters, and travel cost for rest and relaxation for deployed personnel.

In addition, GAO noted that “some costs associated with providing Iraq security services using federal employees—such as developing new career fields, providing additional overhead, and building new housing—are difficult to quantify.” 

So to those who think the costs of the “Global War on Terrorism” were driven up by increased use of contractors, this GAO report seems to an effective rebuttal.  It’s too bad the DOD couldn’t or wouldn’t provide sufficient information to put a final nail in the coffin of that point of view.