[Senate Hearing 112-615]
[From the U.S. Government Publishing Office]
S. Hrg. 112-615
CONTRACTORS: HOW MUCH ARE THEY COSTING THE GOVERNMENT?
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HEARING
before the
AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
MARCH 29, 2012
__________
Available via http://www.fdsys.gov
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri ROB PORTMAN, Ohio
JON TESTER, Montana RAND PAUL, Kentucky
MARK BEGICH, Alaska JERRY MORAN, Kansas
Michael L. Alexander, Staff Director
Nicholas A. Rossi, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
Joyce Ward, Publications Clerk and GPO Detailee
AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT
CLAIRE McCASKILL, Chairman
THOMAS R. CARPER, Delaware ROB PORTMAN, Ohio
MARK L. PRYOR, Arkansas SUSAN M. COLLINS, Maine
JON TESTER, Montana JOHN McCAIN, Arizona
MARK BEGICH, Alaska JERRY MORAN, Kansas
Margaret Daum, Staff Director
Brian Callanan, Minority Staff Director
Kelsey Stroud, Chief Clerk
C O N T E N T S
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Opening statement:
Page
Senator McCaskill............................................ 1
Senator Portman.............................................. 3
Senator Tester............................................... 5
Prepared statement:
Senator McCaskill............................................ 23
WITNESSES
Thursday, March 29, 2012
Jay D. Aronowitz, Deputy Assistant Secretary, Force Management,
Manpower and Resources, U.S. Army.............................. 7
Debra M. Tomchek, Executive Director, Balanced Workforce Program
Management Office, U.S. Department of Homeland Security........ 9
Charels D. Grimes, III, Chief Operating Officer, U.S. Office of
Personnel Management........................................... 10
Alphabetical List of Witnesses
Aronowitz, Jay D.:
Testimony.................................................... 7
Prepared statement........................................... 27
Grimes, Charles D.:
Testimony.................................................... 10
Prepared statement........................................... 48
Tomchek, Debra M.:
Testimony.................................................... 9
Prepared statement........................................... 44
APPENDIX
Chart referenced by Senator McCaskill............................ 51
Chart referenced by Mr. Aronowitz................................ 52
Statements submitted for the Record:
American Enterprise Institute (AEI) and Heritage Foundation.. 53
American Federation of Government Employees (AFGE)........... 60
The Coalition for Government Procurement (CGP)............... 81
National Treasury Employees Union (NTEU)..................... 88
Project on Government Oversight (POGO) with attachment....... 93
Professional Services Council (PSC).......................... 158
Questions and Responses for the Record from:
Mr. Aronowitz................................................ 167
Ms. Tomchek.................................................. 176
Mr. Grimes................................................... 183
Letter submitted by OMB.......................................... 185
CONTRACTORS: HOW MUCH ARE THEY COSTING THE GOVERNMENT?
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THURSDAY, MARCH 29, 2012
U.S. Senate,
Ad Hoc Subcommittee on Contracting Oversight,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:06 a.m., in
Room SD-342, Dirksen Senate Office Building, Hon. Claire
McCaskill, Chairwoman of the Subcommittee, presiding.
Present: Senators McCaskill, Tester, and Portman.
OPENING STATEMENT OF SENATOR MCCASKILL
Senator McCaskill. This hearing will come to order. The
Subcommittee on Contracting Oversight (SCO) is having a hearing
today about contractors, and the question of the hearing is,
how much are contractors costing the government?
As we have discussed many times in this Subcommittee, and
also in the Armed Services Committee where I chair the
Readiness Subcommittee, government agencies are increasingly
reliant on contractors to perform services, and today we are
talking about service contracts, not buying things, contracts
to actually ask people to work at a service on behalf of the
government.
Contractors now perform many of the duties which most
Americans would assume are done by government employees, from
managing and overseeing contracts and programs to developing
policies and writing regulations. Contractors sit side-by-side
with Federal employees and perform many of the same tasks.
Spending on service contractors has outpaced spending on
Federal employees. The cost of service contracts has increased
by 79 percent over the last 10 years from $181 billion to $324
billion, while in the same time period, spending on Federal
employees has only increased by 34 percent, $170 billion to
$229 billion.
As with any expense of taxpayer dollars, we have to ask
whether the government is getting the most effective use out of
these dollars. It would seem intuitive that when deciding
whether to contract out a function, the government would figure
out how much it will cost, and whether it would be cheaper for
Federal employees to do it instead.
For too many years now, the Federal Government has relied
on assumptions and flawed studies to support those assumptions.
Without good data about the cost of using contractors instead
of Federal employees, the government simply does not have the
information it needs to make smart choices.
For those of us who track these issues closely, we have
seen many studies over the years that compare the costs of
Federal employees to the private sector and conclude that the
private sector is more efficient. However, contractors are not
quite comparable to the private sector. Contractors do work for
the government, and some of that work does not exist in the
private sector.
The overhead cost for contractors may not be the same as in
the private sector, and this includes situations where
contractor employees work alongside Federal employees using
government provided equipment and infrastructure. If we are
going to honestly assess whether contractors are more or less
expensive for the Federal Government than using Federal
employees, then we need to look at the cost of contractors, not
just the cost within the private sector.
A report issued by the Project on Government Oversight
(POGO) in September 2011 was the first study I am aware of to
actually attempt to compare the cost of Federal employees
versus Federal contractors. It found that in some instances,
contractors may be paid, on average, more than 1.83 times what
Federal employees are paid to perform the same work. I think
this report was a worthwhile and needed effort, but as the
authors of the report concede, it is hampered by inadequate and
inaccurate data.
For the government to make smart contracting decisions, it
needs more than assumptions. If the government is going to have
the best and most efficient mix of Federal employees and
contractors to perform its work, it needs to be able to assess
the true cost of both outsourcing and insourcing. This analysis
should include overhead costs, how contractor compensation
should be reimbursed, and when some government functions are
inherently governmental or critically impact an agency's core
mission.
I am concerned that one agency charged with management in
the Federal Government does not seem to be providing enough
guidance on this issue. The Subcommittee did extend an
invitation to the Office of Management and Budget (OMB) to be
here today, but unfortunately, OMB declined to attend.
They did not have Senate-confirmed personnel to testify
today since Jeffrey Zients has been elevated to Acting Director
of OMB, and the Director of OMB, as my Ranking Member is well-
aware, had a long-standing policy that they do not testify in
front of subcommittees. And it is a long-standing policy that
agencies only send Senate-confirmed personnel to testify at
these hearings.
It would seem that OMB is in the best position to provide
governmentwide guidance on how agencies should look at cost
and, most importantly, how agencies can gather the data to do
that analysis. I understand that OMB is planning to issue some
cost guidance within the next 60 days. If this is the case, I
look forward to seeing it and hope it will take into account
the issues we discuss today. We will be directing a number of
questions to OMB for the record and those will be available to
the public in connection with this hearing.
I want to say that two of the agencies represented here
today, the Army and the Department of Homeland Security (DHS),
are making strides on cost and data issues. The work that the
Army has done on contractor inventory is setting a standard for
the rest of the Department of Defense (DOD), and the Department
of Homeland Security's Balanced Workforce Strategy tool is a
promising approach to making contracting decisions. I think
both of these efforts deserve further discussion by both
Congress and the Administration.
Today's hearing is an opportunity to discuss these efforts
and to consider other possible tools that the government can
use to make smart, cost-effective contracting decisions. We
need to develop a best practices model to help determine when
contracting will save taxpayer dollars. We also need to start
collecting data that will help us make those determinations.
Assuming that contractors cost less and that the Federal
employees cost more does not help this discussion because,
frankly, we do not have any idea whether that assumption is
true or false. Assumptions are especially costly in our current
budget climate and could undermine efforts to save taxpayer
dollars.
I thank the witnesses for being here today and look forward
to their testimony. I would just add as a note to my opening
remarks that as we have spent a lot of time in Congress talking
about freezing the number of Federal employees and freezing the
pay of Federal employees, there has not been enough talk about
freezing the size of the contracting force and freezing the pay
of contractors.
And, frankly, if people understand that we are spending
more money on service-related contractors in many agencies than
we are spending on Federal employees, that is why I have been
frustrated with these efforts, because it is like saying, you
have a problem, but we are going to shut one eye and only look
at part of it.
This is an attempt today, this hearing, to make sure that
the efforts to freeze the size of Federal employees does not go
on without us taking a hard look at this contracting workforce,
its efficiencies, and whether or not the taxpayers are getting
a bang for their buck in this regard. I will now turn to my
colleague, Senator Portman, for his opening remarks.
OPENING STATEMENT BY SENATOR PORTMAN
Senator Portman. I thank you, Madam Chairman, and it is
good to have the witnesses here with some expertise from some
agencies and departments that actually are making some progress
in this area. It is also good to have your grandsons watching
over us here. After all, they are the ones who are going to
have to solve these problems in the future, so it is good they
are hearing it now.
And it is an important hearing. It is about an important
challenge I think the Chair has laid out well. And, frankly, I
think we need a lot of work right now on how to be sure that we
do have the ability to evaluate the cost effectiveness of using
private contractors. I appreciate, again, the fact we are going
to have some folks here who can give us some examples of how
that can be done better than it is being done governmentwide.
We spend about $320 billion a year now on service contracts
and about $200 billion to compensate Federal employees. Both of
those are major expenditures and both have to be looked at in
this ongoing effort to strike the right balance between the
Federal workforce and government contractors.
Evaluating the cost effectiveness of insourcing versus
contracting sounds like a very technical discussion and it is,
as we will hear from these witnesses, but is an extremely
important process to go through because it has huge
consequences, multi-billion dollar consequences. So simply put,
I think what we are examining here today is how agencies should
evaluate which option, public option or the privately
contracted option, makes the most sense for taxpayers. Where
can we get the best value for the dollar?
Those who have followed this insourcing versus out-sourcing
debate know that sometimes this issue has been politicized. In
fact, during this political campaign, we will probably hear
more about it. We have to be careful that it does not become
political because at a time of $15 trillion debts and trillion
dollar deficits, Federal agencies are going to be under a lot
of pressure, as we are all spending, and we need to be sure
that we are adhering to a neutral and an analytically sound
cost comparison methodology.
The decision to insource or contract out any government
activity, existing, new, or expanded, should be data-driven.
And, frankly, I think we do not have the methods and data
available right now to do that. We need to be sure that we do
not end up producing cost savings projections that need to be
reworked.
This all starts with a fundamental threshold question.
Chair McCaskill just talked about it. It is the question, is
this job suitable for contractors to perform or is it
inherently a governmental or a critical function that should
remain in-house? OMB and individual agencies have provided
guidance on that question over the years, including the current
Administration's 2009 OMB Memorandum entitled, Managing the
Multi-Sector Workforce.
Once it is determined whether it is public or private, the
decision where to place the work, again, should be primarily
cost-driven, in my view. We get a better value as taxpayers
when commercial activities are paid for by the Federal
Government are the subject of competition. This is an
interesting point because just by having competition, we are
going to see savings.
As the Center for Strategic and International Studies
reported last year, research demonstrates that 65 percent of
savings achieved from public-private competition is derived
from the competition itself, not any intrinsic advantage of
public versus private. So competition does work and that should
be part of the analysis.
In-sourcing or contracting decisions based on costs depend
on the ability, of course, to accurately project these
comparative costs, and guesswork does not work, it will not
suffice, and that is one of the overriding concerns for me, is
that there is an apparent lack of uniform guidance on cost
comparison methodologies. I will be interested to hear from our
witnesses on that and see what they think.
But from 1996 to 2009, of course, you had the OMB guidance
document, Circular A-76, which every OMB employee is very
familiar with, and that basically governed contracting out of
commercial activities in various forms. Congress told agencies
to stop conducting Circular A-76 competitions, and that is a
mistake. I think whatever its strengths and weaknesses, A-76
provided detailed guidance that is needed on cost comparison.
Since A-76 was suspended, it appears that agencies have
been left largely on their own with little oversight or
guidance. The current Administration has stated that agencies
faced with sourcing decisions should still, quote, perform a
cost analysis that addresses the full cost of government and
private sector performance. That is fine, but again, OMB has
provided little if no guidance on how to perform that analysis.
The Government Accountability Office (GAO) recently found
that OMB's new policies have created, and I quote, confusion as
to when a cost analysis is needed and the appropriate
procedures to conduct one. As Chair McCaskill said, we need to
hear from OMB on this. When I was OMB Director, I thought that
Subcommittee rule made a lot of sense. I am now wondering. But
seriously, we do need to hear directly from OMB, although we
appreciate the agency input today and their view of it.
But this lack of guidance is problematic for a lot of
agencies because the apples-to-apples comparisons between
contract work and in-house functions are often very complex,
and the guidance is needed and needs to be uniform.
On the government side, the analysis is particularly
difficult and requires a fine grained analysis. An agency has
to evaluate the fully burdened cost of using or adding Federal
employees, overhead costs, equipment use, other expenses.
Multiple reports have indicated we are not getting that right.
The contractor side is generally easier to price out with the
exception of cost-plus contracts, which are difficult.
An important dimension of this problem that agencies appear
to be overlooking is that insourcing can reduce flexibility,
and as a result, increase long-term costs. And this is, again,
something that ought to be considered. The point is, it is
difficult to eliminate or downsize an agency program.
GAO, the Center for Strategic International Studies, and
others have looked at this problem and have noted that
terminating a contract is far easier than adjusting the size of
the Federal workforce. Again, agencies have no guidance on how
to evaluate that cost of lost flexibility. Whoever is doing the
government work, Job 1, of course, is ensuring that American
taxpayers get the best possible value and that is what this
hearing is all about.
Informed sourcing decisions are key to achieving that goal.
And again, with that, Madam Chairman, appreciate you holding
this hearing. I look forward to hearing from our witnesses on
this complex but important issue.
Senator McCaskill. Thank you, Senator Portman. Would you
like a minute, Senator Tester.
Senator Tester. Yes, I would.
OPENING STATEMENT BY SENATOR TESTER
Senator Tester. Thank you, Madam Chairman. Thank you,
Ranking Member Portman, and thank you to the witnesses who are
here today. I look forward to your testimony. I think we can
all say there is probably a lot of contractors out there that
are doing a job and doing it well. I think we can also
acknowledge that I think there are a number of contractors who
are out there that are overeating at the taxpayer trough.
I think that I appreciate this hearing, it has been one of
many that Chairman McCaskill has done, because there are
certain things that, since I have been in the U.S. Senate, have
been brought to my attention that is somewhat disturbing. The
concept of no-bid contracts is an amazing concept to me.
The concepts of the Federal Government using somebody else
as basically their contractor to contract is something that is
pretty amazing to me. And with the wars in Iraq and Afghanistan
and the number of contractors we are utilizing in those, and I
have been over there. I have been protected by some of those
contractors and I will tell you that they did a good job
because I made it back here in one piece.
But the amount of money that we are paying for those
contractors versus what we are paying our active military and
if we are actually getting, as Senator Portman said, the
taxpayers' best value really brings a lot of what is going on
here into question.
I do not want to take a lot more time, but I just want to
state that I do not know if there was a move some time ago to
say we are going to downsize government and we are going to
replace those with contractors so we can try to dupe the
American taxpayer, or if there was a real effort that somebody
thought this was really going to save money.
But I can tell you that when we talk about $60 billion
being gone up in air--and $60 billion is a lot of change, I
mean, that is a lot of Montana budgets for a lot of years--we
are doing something wrong and it is unacceptable. I look
forward to your statements. I look forward to hearing what you
have seen.
In the meantime, in my notes here for my opening statement,
it says, Tell them you are confident that the Federal
Government can bring accountability to the process. I cannot
say that. I have not seen that. And when we are talking about
deficits--by the way, this is inappropriate at any time, but
especially when we are talking about deficits like we have
now--we have to get our arms around this situation. I want to
thank the Chairman once again.
Senator McCaskill. Thank you, Senator Tester. Let me
introduce our witnesses. Jay Aronowitz--am I saying it
correctly?
Mr. Aronowitz. Yes, ma'am.
Senator McCaskill [continuing]. Is Deputy Assistant
Secretary of Force Management, Manpower and Resources for the
U.S. Army. In this position, he advises the Army's Assistant
Secretary of Manpower and Reserve Affairs on all matters
pertaining to total force structure and associated military,
civilian, and contractor manpower in the active and reserve
components, program objective memorandum resources for programs
under Manpower and Reserve Affairs oversight, and all manpower
and personnel issues associated with force structure
requirements of new weapons systems. Mr. Aronowitz also
provides direct oversight for the U.S.A. Manpower Analysis
Agency.
Debra Tomchek is the Executive Director of the Balanced
Workforce Program Management Office in the Office of Chief
Human Capital Officer at the Department of Homeland Security.
Ms. Tomchek began her government career as a civilian Army
intern. Since then, she has held several executive positions
including Director for Human Resources at the Department of
Commerce and the Department of Justice (DOJ), Deputy Director
for Program Support at the Department of Defense, and as
Associate Director for Workforce Solutions at the United States
Mint.
Chuck Grimes is the Chief Operating Officer at the Office
of Personnel Management (OPM), where he is responsible for
managing OPM's human, financial, and other resources. He is
also responsible for improving the agency's performance and
achieving the agency's goals through strategic planning,
measurement, analysis, and progress assessment. Prior to
joining OPM, Mr. Grimes served as the Assistant Director of
Compensation Policy in the Strategic Human Resources Division
at the Internal Revenue Service (IRS) and as Director of the
Wage and Salary Division for the Department of Defense's
Civilian Personnel Management Service.
Thank you all for being here. It is the custom of this
Subcommittee to swear all witnesses, so if you do not mind, I
would ask you to stand.
Do you swear that the testimony that you will give before
this Subcommittee will be the truth, the whole truth, and
nothing but the truth, so help you, God?
Mr. Aronowitz. I do.
Ms. Tomchek. I do.
Mr. Grimes. I do.
Senator McCaskill. Thank you all very much. We will begin
your testimony, Mr. Aronowitz.
TESTIMONY OF JAY D. ARONOWITZ,\1\ DEPUTY ASSISTANT SECRETARY,
FORCE MANAGEMENT, MANPOWER AND RESOURCES, U.S. ARMY
Mr. Aronowitz. Chairman McCaskill, Ranking Member Portman,
distinguished Members of this Subcommittee, thank you for the
opportunity to appear before you today. I am honored to have
the opportunity to discuss the Army's contractor inventory and
how we use this information for the strategic human capital
planning for our total force, military, civilian, and
contractors.
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\1\ The prepared statement of Mr. Aronowitz appears in the appendix
on page 27.
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To serve as effective stewards of public funds, the Army
must ensure that we are managing our workforce in the most
effective and cost-efficient manner possible. To that end, we
developed our Contractor Manpower Reporting Application tool
(CMRA), in January 2005 to increase the visibility of the
Army's contract workforce, both in terms of labor, hours, and
costs.
As part of the development process and in order to gain
approval under the Paperwork Reduction Act (PRA), we met with
over 50 corporations and worked with them in designing a system
that would minimize the reporting burden on them and the cost
to the government.
The reporting process is so streamlined that most
contractors do not even separately bill the government for
reporting this data. Today we have over 20,000 contractors
entering data into CMRA. CMRA was developed at a cost of
approximately $1 million using commercial off-the-shelf
software and it is government owned.
A staff of five individuals manage the program for the
entire Army, providing help desk capability, interpreting
policies, running reports, and coordinating actions across our
acquisition, manpower, and financial management staffs. The
Army uses CMRA to collect the direct labor hours and labor
dollars associated with each service contract, as well as the
function, location of performance, requiring activity, funding
source, and type of contract vehicle.
In fiscal year (FY) 2001, we began collecting data on other
direct non-labor costs which includes supply cost and travel
expenses, as well as a variety of other expenses charged
directly to the government. By collecting this data, the Army
can now see direct labor and direct non-labor costs, and thus,
infer overhead costs, though we have just begun to analyze
these overhead costs.
The inventory compiled in the CMRA today is primarily used
to fulfill the statutory requirement to identify inherently
governmental functions and closely associated with inherently
governmental functions, authorized personal service contracts,
and functions appropriate for contract performance.
Beginning in fiscal year 2011, the Department of Defense
was required to submit a budget exhibit of service contract
manpower and costs. The Department of Defense Comptroller
recently issued guidance that the services inventory of
contract services would be used to inform the budget process,
and we have started to work with the Army Comptroller to ensure
Congress will have the most accurate data on contract services
in the future, and that our program and budget for fiscal year
2014 for contract services is built on data from CMRA.
CMRA, our inventory of contract services, has helped us to
improve management of our total force by identifying
inappropriately contracted functions and by collecting cost
information to help us make informed decisions on the most
appropriate workforce mix.
In addition to service contract data, CMRA allows us the
ability to ensure adequate oversight of service contacts by our
organic workforce, a statutory requirement, and ensure there
are no redundancies between the contracted functions and the
organic government workforce.
In December 2011, in response to the House Armed Services
Committee concerns over lack of visibility as to what DOD
spends on contract services, Secretary of Defense responded
that he was, quote, committed to enable the efforts of the rest
of the Department of Defense to quickly implement the Army's
Contract and Manpower Reporting Application tool this fiscal
year, while also leveraging Army processes, lessons learned,
and best practices to comply with the law in the most cost-
efficient and effective manner.
In closing, we believe that the Army's contractor inventory
process has potential benefits, not only for the rest of the
Department of Defense, but also for governmentwide application.
Chairman McCaskill and Members of the Subcommittee, thank you
for your support and I look forward to your questions.
Senator McCaskill. Thank you very much, Mr. Aronowitz. Ms.
Tomchek.
TESTIMONY OF DEBRA M. TOMCHEK,\1\ EXECUTIVE DIRECTOR, BALANCED
WORKFORCE PROGRAM MANAGEMENT OFFICE, U.S. DEPARTMENT OF
HOMELAND SECURITY
Ms. Tomchek. Chairman McCaskill, Ranking Member Portman,
and distinguished Members of the Subcommittee. I appreciate the
opportunity to speak to you today about the Department of
Homeland Security's efforts to balance our Federal and
contractor workforce.
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\1\ The prepared statement of Ms. Tomchek appears in the appendix
on page 44.
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During the Department's stand-up in 2003, contractors
played a significant role as leadership worked quickly to
obtain the capabilities necessary to accomplish our mission. By
2007, concerns surfaced about possible over-reliance on
contractors at DHS. At the request of Congress, the Government
Accountability Office recommended that DHS take action to
improve its ability to manage risk and to ensure governmental
control and accountability.
To comply with GAO's recommendations, statutory
requirements, guidance from the President and the Office of
Management and Budget Policy, DHS established our balanced
workforce strategy in mid-2010. The strategy has three aims.
First, to ensure compliance with applicable statutes,
regulations, and policies through a repeatable, documented,
decisionmaking process. Second, to determine the proper balance
of Federal and contractor employees for programs and functions.
And third, reduce mission risk and, as practicable, reduce or
control cost.
The Balanced Workforce Program Management Office was
established within the Office of the Chief Human Capital
Officer with an understanding that rebalancing the workforce
would have to rely on sound workforce planning. Given the
complexity of decisions related to properly sourcing programs
and functions, we simultaneously created a departmental working
group with senior representatives from the Office of the Chief
Financial Officer, the Office of the Chief Procurement Officer,
and the Office of the General Counsel.
The departmental working group uses its multidisciplinary
expertise to oversee the execution of the balanced workforce
strategy by components. We also created the Balanced Workforce
Executive Steering Group comprised of representatives from
components to provide input and direction concerning the
strategy.
In 2010, DHS components began reviewing current service
contracts using the three-step balanced workforce strategy
process. The first step, identify the work, involves looking at
a service contract's statement of work (SOW) to isolate and
accurately describe each discrete function that should be
analyzed.
The second step, analyze the work, relies on an electronic
questionnaire entitled, The Balanced Workforce Strategy Tool.
The tool leads components through a series of questions about a
function to ensure compliance with law, regulations, and
relevant policy.
The tool also includes a method for assessing sufficient
internal or Federal capability and uses questions such as, What
is the relationship of a function to the Department's core
mission? What is the risk to a function if all contractors were
to leave suddenly? And what is the likelihood that a function
might evolve into one that is inherently governmental?
The Balanced Workforce Strategy Tool produces a suggested
ratio of Federal to contractor employees for components to use
in considering mission control and the sourcing of a function.
If concerns about mission control are identified, components
may seek to rebalance the workforce for a function. However,
components may alternatively provide a risk mitigation strategy
such as enhancing contract oversight or increasing reporting
requirements.
If a component's responses to the questionnaire indicate
that a function can be performed by either the public or
private sector, the component must then consider the cost to
DHS. The DHS Balanced Workforce Strategy guidance mandates that
components perform cost comparison analysis to determine the
most efficient sourcing solution.
First, components calculate the cost of Federal workers
using the OMB-approved, DHS Modular Cost Model. This model
incorporates a variety of factors to describe the fully loaded
cost for Federal employee to DHS. On the contract side, the
cost of the current contract is used, including the cost of
contract oversight. If a new requirement is being reviewed, an
independent government cost estimate serves as the basis for
comparison.
The third step in the Balanced Workforce Strategy process
is to implement the sourcing decision. If the workforce for a
function requires rebalancing, numerous stakeholders must
collaborate to make the change. The Department's workforce is
responsible for executing our complex and important Homeland
Security mission to protect the American public and the
American homeland.
To meet our mission objectives, we need the expertise of
both Federal workers and contractor employees. The Balanced
Workforce Strategy contributes to DHS mission readiness through
its focus on mission control, accountability, and oversight for
business decisions and cost containment.
I look forward to answering any questions you might have.
Senator McCaskill. Thank you so much, Ms. Tomchek. Mr.
Grimes.
TESTIMONY OF CHARLES D. GRIMES III,\1\ CHIEF OPERATING OFFICER,
U.S. OFFICE OF PERSONNEL MANAGEMENT
Mr. Grimes. Madam Chairman, Ranking Member Portman, and
Members of the Subcommittee, thank you for the opportunity to
testify before you today on contracting and the multi-sector
workforce. The U.S. Office of Personnel Management is the
central human resources agency for the Federal Government,
providing leadership and guidance to Federal agencies on
governmentwide policies for strategic management of the Federal
workforce.
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\1\ The prepared statement of Mr. Grimes appears in the appendix on
page 48.
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The American people expect and deserve a high-performing
government that can efficiently and effectively carry out its
missions, such as defending our homeland, providing care to our
veterans, and ensuring the safety of our air and water.
Performing this highly challenging and complex work depends on
an engaged and well-prepared workforce with the right mix of
knowledge, skills, and abilities.
One of OPM's roles is to set standards for effective
management of human capital and to assist agencies in meeting
those standards. OPM evaluates agency performance in meeting
those standards through an annual reporting, evaluation, and
feedback process. One of these standards is strategic
management alignment, that is, having a human capital strategy
aligned with mission goals and organizational objectives.
Effective workforce planning is critical to meeting the
strategic alignment standard. Workforce planning is the
systematic process to identify and document mission-critical
occupations and associated current or anticipated competency
gaps, then to address those gaps using strategies and
techniques such as restructuring, recruitment, redeployment,
retraining, retention, or technology solutions.
OPM, however, does not get involved in specific agency
workforce planning decisions, nor does it get involved in
agency-specific decisions such as whether or not to
competitively source or contract particular functions. OPM does
analyze non-Federal and Federal pay for the purposes of
comparisons required for setting Federal employee pay under the
General Schedule pay system, but it does not determine whether
Federal employees or private contractors are more cost-
effective in the performance of government operations.
Agencies have that responsibility in their specific areas
of operation. For instance, as agencies consider the
appropriate size and composition of the workforce necessary to
carry out their missions, the determination on whether to use
private sector contractors is best informed by application of
sound planning principles, such as the level of specialization
needed for a specific task, the duration of need for that
specialization, and cost comparisons. Other considerations
include the availability of expertise, the time needed to train
new employees thoroughly, the urgency of the need, the
resultant opportunity costs, and the need for institutional
memory.
It is worth emphasizing that a simple comparison of labor
costs alone is not likely to answer the question of which
sector would be more cost-effective and efficient in performing
a given task in a specific circumstance. For example, a cost
comparison to consider in-house performance as an alternative
to continued contract performance might be beneficial if
requirements tend to be managed best through an employer-
employee relationship, the agency has experience in performing
the work in-house, the ability to recruit for the skill is
high, and the government has historically had challenges with
contractor performance.
By contrast, the benefit of a cost comparison may be lower
if the agency is looking to meet a short-term surge that would
be costly to address through long-term hiring, the agency
currently lacks an in-house capability to do the work, and the
agency has had considerable success in getting good performance
at a reasonable cost from its contractors.
All of these factors have a role in determining when a cost
comparison is likely to be most effective in achieving best
value for the taxpayer. OPM provides guidance and training to
assist agencies in identifying workforce requirements and
conducting training sessions on multi-sector workforce
planning. OPM has focused on the way our human capital
management standards apply to multi-sector planning.
OPM has not delivered training on how agencies should
appropriately compare the cost of a contracted versus employed
workforce. Agencies may refer to OMB publications such as
Memorandum M-09-26, which requires agencies to begin the
process of developing and implementing policies, practices, and
tools for managing the multi-sector workforce for guidance in
making such comparisons.
Additionally, on September 12, 2011, OMB's Office of
Federal Procurement Policy published a policy letter,
Performance of Inherently Governmental and Critical Functions,
in order to provide guidance to agencies on governmental and
critical function management.
OPM is also co-chairing an interagency working group with
the Department of Defense to implement the Administration's
Cross-Agency Priority Goal to close skill gaps to more
effectively achieve agency missions, an important workforce
planning effort that will require agencies to look at
recruitment, training, and business processes, as well as the
use of technology and contractor support.
OPM's support and coordination of effective management
practice sharing among agencies will be essential to achieving
this goal. Thank you again for this opportunity to testify
before you and I look forward to any questions you may have.
Senator McCaskill. Thank you very much, Mr. Grimes. I would
like to start by looking at the chart,\1\ Mr. Aronowitz, the
total force mix, military, civilian, and contractor, and I wish
we had it large, but we do not. But you can see, looking at
this chart, that the civilian personnel has stayed very stable
and really has not changed; military personnel, while we have
had a slow growth, but really the real growth has been in this
contractor category.
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\1\ The chart referenced by Senator McCaskill appears in the
appendix on page 51.
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Senator McCaskill. The Department has called these
contracts increasingly unaffordable and says savings are here.
And I fundamentally believe that, as somebody who has had
really a 50-yard line seat on contracting for 5 years in the
Department of Defense. Anybody, including my friends I work
with to bring down the cost of Federal Government, anybody who
believes we cannot find savings in the Department of Defense
around contracting does not know the issue.
And so, everyone who says we cannot cut one dime from the
Department of Defense and that, in fact, we need to continue to
grow that budget is really not taking the time to understand
how contracting has gone wild. And I do think the Army is
working very hard to get a handle on this, but I find it
astonishing that agencies do not consider whether it is cheaper
to use contractors or Federal employees before deciding whether
to award a contract.
Ms. Tomchek, if DHS developed a similar graph, do you think
the results would be the same?
Ms. Tomchek. Well, first, our active duty military is
pretty small because it is in the----
Senator McCaskill. I mean the comparison between civilian
and contractors.
Ms. Tomchek. I do not have specific information, but I tend
to doubt that it would be as stark as this.
Senator McCaskill. Well, I would bet that if--it may be
coming down now, but when I got here, I will never forget
speaking to Secretary Chertoff in one of the very first
hearings I had in the Committee, and when I asked the question,
How many contractors work at the Department of Homeland
Security, it was like I was speaking a different language. No
one had any idea.
And I think people are envisioning contractors differently
out there than what we know they are. If I go to the Department
of Homeland Security, as you well know, and I go down carrels,
everybody is doing the same function, everyone having the same
job, it is likely to be employee, contractor, contractor,
employee, contractor, contractor, contractor, employee,
employee, contractor. Is that not accurate?
Ms. Tomchek. I do believe that when GAO did its report in
2007, that was probably very likely accurate. Since that time,
we have been working diligently to address issues of mission
risk that were raised by GAO, along those same lines, as to why
we had so many contractors in place to accomplish the mission
of the Department.
The primary purpose of the Balanced Workforce Strategy is
first to comply with the law. But second, it is to ensure that
we have control of our mission. And I believe that GAO pointed
out that given that situation, as you described it, which I
believe was definitely the case in 2007, that we have tried
very hard to make progress to reduce that as a result of the
Balanced Workforce Strategy.
Senator McCaskill. Let me also ask DHS, you have identified
3,500 contractor positions for insourcing and at least 2,600
Federal positions were filled as of the end of 2011. How much
as the Department saved by converting contractors to government
positions?
Ms. Tomchek. That effort was the very first effort that we
had underway. It was done prior to the Balanced Workforce
Strategy. We did a data call last year and we are getting ready
to implement our second data call to determine what savings
there might have been. But information from our components as
of the data call last year was approximately $28 million.
Senator McCaskill. So by converting contractor positions to
Federal employees, you saved $28 million?
Ms. Tomchek. That is what our components reported to us,
yes, ma'am.
Senator McCaskill. What methodology, including assumptions,
have you all used to come up with those numbers? How are you
doing that?
Ms. Tomchek. When we sent the data call last year, we asked
the components to use the same costing methodology that I
previously described, which is, what was the total cost of the
contract, and then what is the total cost of the Federal
workers that have been hired, using the OMB-approved DHS
modular cost model. It is our understanding that this was
applied in that fashion and those were the savings that were
documented.
Senator McCaskill. Mr. Aronowitz, in the past several
years, both the Administration and the Secretary of Defense
have announced initiatives to reduce on the amount spent on
contractors. Do you know to what extent the Army has reduced
the total amount spent on contracts over the last 2 years?
Mr. Aronowitz. Yes, ma'am. I can give you a figure and then
I can tell you some of the challenges that we have and how I
think that we can address those going forward. For base budget
contracts in fiscal year 2009, we spent $32 billion, in fiscal
year 2010 $36 billion, and in fiscal year 2011 $40 billion. If
you want, I can also give you the figure for the civilian pay.
For civilians in fiscal year 2010, it was $20 billion as
compared to the $32 billion spent on service contracts.
In fiscal year 2010, it was $22 billion for civilian pay--
and when I say pay, it is really the fully burdened pay of
civilians--$22 billion in relation to $36 billion spent on
service contracts. And in fiscal year 2011, $24 billion on
civilian pay and $40 billion on service contracts.
The real challenge that we have, ma'am, in terms of
managing service contracts is that we do not have it very well
integrated into our program and budget. They tend to be
executed in the year of execution of the budget, and so it is
kind of a rear-looking event in terms of how much have we
executed last year.
In my written testimony, there is a chart\1\ that shows
service contract dollars going down significantly in the period
of fiscal year to 2008 to 2009, and then starting to go back
up. And interestingly enough, that period of 2008 to 2009 was
when we first implemented our inventory of contract services
where we had--requiring activities having to fill out a
checklist that tracked back to statute in law to ensure that
they were not going to implement a service contract involving
inherently government work or an unauthorized personal service
contract, and whether or not if it was closely associated, that
one, that there was enough organic government capability to
oversee the execution and performance of that contract, and
enough contracting officers representatives (CORs), and that
the workforce was adequately trained and capable to oversee the
performance of the contractors.
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\1\ The chart referenced by Mr. Aronowitz appears in the appendix
on page 52.
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That was a period when this was totally voluntary. The
Secretary of the Army sent out a memo and said that the first
general officer, or the Senior Executive Service (SES), in the
chain of command would have to certify the checklist so that,
again, we were not having contractors to perform inherently
governmental functions.
And during that period, we saw service contract dollars go
down significantly. It went from $51 billion in 2008 down to
$32 billion in 2009. It was the first time that the Department
seriously looked----
Senator McCaskill. That is $20 billion. That is some
significant change.
Mr. Aronowitz. Yes, ma'am.
Senator McCaskill. So what happened? Why did it start going
back up again?
Mr. Aronowitz. Well, the challenges were, again, we do not
program and budget for the service contracts. They are not
integrated into our budget and there are year of execution
issues that we see. And so, the Army's intent going forward is
to ensure that we integrate these service contracts in our
program and budget.
The Army acquisition executive, following DOD guidance, has
set up a governance structure and a portfolio of management
structure for service contracts, six portfolios. We have mapped
our inventory of contract services to these portfolios. And we
are trying to integrate both our inventory and the portfolios
into the budget process. And I think if we can achieve that,
then we will have much better control over the budgets for
service contracts.
Senator McCaskill. Thank you very much. Senator Portman.
Senator Portman. Thank you, Madam Chairman. If I may
followup a little with DOD because it is an interesting story.
In 2009, you guys started an insourcing initiative and the
goal, as I understand it, was to replace 30,000 contractors
with DOD civilians between 2010 and 2015. And DOD planned at
the time to achieve budgetary savings equal to 40 percent of
the cost of the contracts replaced.
More recent DOD statements have claimed the savings could
be not 40 percent, but 25 percent. In 2010, August, before he
left, Secretary Gates said in a speech that Defense agencies,
quote, were not seeing the savings we had hoped for from
insourcing, and DOD shifted the policy to try to eliminate
unnecessary jobs rather than trying to simply trade contract
workers for Federal employees.
It is my understanding that the Army suspended insourcing
altogether in late 2010. What happened? What are the lessons
that you learned from your insourcing initiative?
Mr. Aronowitz. Sir, if I can go back to again the period of
2008 to 2009 when we saw the initial drop, it was a voluntary
insourcing program that had no undue outside controls or
influence pressurizing another component of our total force. As
you mentioned, Secretary Gates directed to the Army a savings
of $400 million with the assumption that we could save 40
percent if we insourced.
That money was taken off of the Army's top line and so we
were driven to insource approximately 9,000 to 10,000
contractor man-year equivalence without really having done the
due diligence, workload analysis up-front. And so, you have----
Senator Portman. Projections really were not based on a
thorough analysis. The projections were more of a budget
decision and then you tried to achieve those budget savings.
Mr. Aronowitz. Yes, sir, absolutely. In this case, we had
the budget trying to drive workforce mix decisions. Our
experience at the Army is that 40 percent was a very aggressive
goal to meet. We had two instances over different periods of
time where we achieved anywhere from about 16 to 30 percent
savings. And really, the percentage savings are really
dependent upon the function that is being insourced and the
location of where that is occurring.
Senator Portman. Well, let me just say, as a general matter
as we are going through the current downsizing because of the
cuts and the Budget Control Act and now the potential
sequestration at the end of the year, I have some of the same
concerns that you are, establishing budget numbers without
backing them up with good analysis. And certainly that goes to
what we talked about today in general, which is that we do not
have the kind of data-driven analysis that we need to be able
to make these decisions wisely.
I talked earlier about this Circular A-76, which is the
long-standing circular people relied on for years through
Administrations, Republican and Democrat alike. That is now
being used since 2009, really because of Congress. And I just--
I am very concerned that we do not have the kinds of careful
analysis being done because the guidance is not there.
The Administration has maintained that for jobs that can be
done by contractors, agencies should, and I quote, evaluate the
full cost and perform like comparisons. The trouble is that
unlike A-76 it does not say how you do that. And there is not
much guidance on how to implement this revised approach.
GAO has found this new policy has created confusion and
noted that OMB's criteria do not specify the procedures for
conducting a cost analysis or define what constitutes the full
cost of performance. So I guess to all of you, and, Mr. Grimes,
you talked a little about this, with OMB issuing guidance
governing everything from the quality of science that has to be
used by your agencies to the cost/benefit analysis of
regulations, do you believe that OMB should step in here and
take a more central role in creating a uniform and a consistent
credible cost comparison methodology for making these
insourcing and outsourcing decisions?
Mr. Grimes. I think OMB would be the central management
agency that would be best positioned to do that. I would just
like to point out that there are a number of difficulties with
cost comparisons that would have to be sort of addressed and
taken into account.
As you know, we compare Federal salaries against private
sector salaries in setting pay for General Schedule employees,
and we find one thing with the way that we do it and others
find different answers when they study that issue using other
assumptions. So to the extent that those assumptions could be
laid out and followed and considered appropriately, then I do
agree OMB is the right place to go.
Senator Portman. And you think there is a need for it, to
have a uniform standard that is established to provide
additional guidance?
Mr. Grimes. I think if you have a need--if you are going to
make these comparisons across agencies, then uniform standards
would be helpful.
Senator Portman. Do you agree, Ms. Tomchek?
Ms. Tomchek. Yes, sir. The Department of Homeland Security
would definitely welcome additional guidance on this issue. We
try very hard to ensure that all of our work adheres to the
guidance issued by the Congress and by OMB, and this would be
extremely helpful for us.
Senator Portman. Mr. Aronowitz.
Mr. Aronowitz. Sir, in DOD, there is a directive-type
memorandum (DTM), which is entitled, Estimating the Cost of
Military and Civilian Manpower and Service Contracts. So within
DOD, we basically have a cost/benefit analysis tool to ensure
we have the fully burdened cost of our workforce.
I would say that before I signed up to a one-size-fits-all
for the government, that there are some nuances to DOD that
would have to be considered going forward.
Senator Portman. Thank you, Madam Chairman.
Senator McCaskill. Thank you, Senator Portman. Senator
Tester.
Senator Tester. Thank you, Madam Chairman. I think we will
approach this from two different ways, looking backward and
looking forward. First of all, I do want to say thank you all
for being here. I appreciate your testimony. I appreciate what
I have heard today.
Mr. Aronowitz, you said that in 2009 there was a 40 percent
savings when it went from contractors to civilians. And you
also had said there was some elimination of unnecessary jobs--I
do not want to paraphrase, if that is not what you said, tell
me--that helped contribute to that 40 percent.
And I guess it brings up an interesting point to me in that
when the military, I think, has more control, I think it would
be fair to say and you can correct me if I am wrong, that they
have more control with the civilian workforce than they do the
contractors. Would you agree with that?
Mr. Aronowitz. Yes, sir.
Senator Tester. I think it gives them an opportunity to get
rid of some of the driftwood that was in the staff. As you guys
make your assessments and your evaluations and make your
transfers, the ones that are appropriate, what kind of--I mean,
are you seeing some potential savings from folks who really
have no function, but just kind of were along for the ride for
whatever reason?
Mr. Aronowitz. Sir, I would not subscribe to that writ
large. First of all, when the Army again did the insourcing in
2008 and 2009, we achieved about a 30 percent cost savings.
When DOD directed and took $400 million out of our budget,
their assumption was that there would be a 40 percent savings,
and this was in about the fiscal year timeframe.
Senator Tester. Thirty percent is not chump change. I mean,
that is pretty incredible.
Mr. Aronowitz. I would agree, sir.
Senator Tester. And you need to be applauded for that and I
would hope that you would move forward. And by the way, when I
am critical of the contractors, I am not critical of the active
military. I just want to make that very clear. You guys do an
incredible job and I want to thank you for your service. I have
never been around a more professional workforce than I am when
I was in Iraq and Afghanistan.
Ms. Tomchek, I remember when Madam Chairman asked a
question about contractors at Homeland Security. And correct me
if I am wrong, Claire, but I do not believe that they could
answer the question as to how many contractors they had.
Senator McCaskill. And I do not think the Department of
Defense thinks they can get us that number until 2016 at the
earliest, I believe, is the date we have been given. Is that
correct, Mr. Aronowitz?
Mr. Aronowitz. Well, ma'am, I cannot speak for DOD. I can
speak for the Army.
Senator McCaskill. Right. That is right. I am sorry.
Mr. Aronowitz. During or through our inventory process, the
Army is very confident in the number of contractors or contract
man-year equivalence that we capture, which is about 217,000
today.
Senator Tester. In this day of computers that basically can
run processes that are incredible, I think it is amazing that--
everybody should be able to tell us that number just like that.
I mean, I think that if they cannot, it tells me that the
system is broken. OK?
I just want to move on just a little bit. There were $60
billion that was lost to waste, fraud, and abuse in Iraq and
Afghanistan for the entire contracting process. This was done
by the Commission on Wartime Contracting. Occasionally I get to
sit on the floor and do some presiding, and I hear folks
continually get up and talk about Solandra 500 and $35 billion
wasted, and by the way, that is totally unacceptable. We are
talking about $60 billion here.
Can any of you answer the question as to, if there is any
possibility of recouping that money and what percentage of that
money might possibly be recouped?
Mr. Aronowitz. Sir, since I believe that is a DOD figure, I
would like to take that for the record and get it back to the
Subcommittee.
Senator Tester. I would love to see what is going on. I
mean, it is an amazing figure for me. I recently joined Senator
McCaskill on legislation that would implement many of the
recommendations for the Commission on Wartime Contracting. Your
perspective, Mr. Aronowitz, or any of you for that matter. Do
you think the recommendations would have a positive effect on
the way that the Army, Department of Defense--I know you cannot
speak for both, but maybe you can--would do business with
contractors? Or would it hurt your ability to achieve a
savings?
Mr. Aronowitz. I know that the legislation is now being
reviewed back in the Pentagon and we will get a response back
through DOD on that. The Secretary of the Army takes this very
serious and he has directed the Army's staff to basically
expedite the hiring initiative we had to grow the acquisition
workforce and also to increase the military by about 1,000
soldiers in the acquisition field to build an expeditionary
acquisition capability.
And again, I know this is reaction to the Commission on
Wartime Contracting, but again, we take it very serious in the
Department.
Senator Tester. One last question, and I would direct it to
Mr. Aronowitz, but any of you can answer the question because I
think it applies to the government across the board, whether it
is DOD, Department of State, or Homeland or any others as far
as that goes. I know that in Iraq and Afghanistan, we have
awarded and re-awarded non-compete contracts. Can you give me
any idea to what extent this still happens, that folks are
awarded non-compete government contracts?
Mr. Aronowitz. Again, sir, I would have to take that for
the record and get you a better fidelity on the numbers and get
back to the Subcommittee.
Senator Tester. We would love to get that. Would you two
want to respond to that at all?
Ms. Tomchek. I do not have those numbers, but would be
happy, also, to get them for you. I would add that the law that
we follow, which is Section 736 of the Fiscal Year
Appropriations Act, specifically asked us to look at sole
source non-competed contracts when we do these reviews, and it
is something that is captured on our questionnaire, to make
sure that we could sort those out and look at those separately
if we needed to do so.
Senator Tester. And have you?
Ms. Tomchek. Our questionnaire process has a database in
the back and we have not yet derived much information from it.
Senator Tester. Chuck.
Mr. Grimes. I know that we do look at that, but to give you
specific figures, I would have to get back to you for the
record.
information for the record
OPM does award non-competitive contracts, on an exception
basis. In FY 2011, 25 percent of the total dollars awarded by
OPM were through non-competitive actions. These awards are
merit-based, justified in accordance with long-standing
statutes that authorize the use of non-competitive contracting
in certain prescribed situations, such as urgency, the
availability of only one responsible source, or the protection
of national security. Justifications must be approved.
Senator Tester. I would like that. And thanks for the
latitude, Madam Chairman. I would just say that I think
everybody in this room gets it and I know you guys get it. When
you have non-compete contracts, you are not getting best value.
I would say I dare somebody to show me how you get best value
out of a non-compete contract. And when the average taxpayer
looks at that, they are saying to themselves, What is going on?
When I go buy a car, I do not walk into the auto dealer and
look at the list price and say, Write up the papers. You go to
several auto dealers and then you negotiate on the price. And
it is the same thought process, for my mind anyway. So I really
think it is a non-starter. And I know a lot of these contracts
come out and they are so doggone big that you might only get
one person to bid on it, and that is another problem, by the
way. We need to break those down so that they are available to
be bid on companies, because quite honestly, if you get more
bidders, you are going to get better value for your dollar.
So I want to thank the Chair for holding this hearing and I
want to thank the people who have testified today. I appreciate
your straight-forwardness.
Senator McCaskill. Thank you, Senator Tester. One of the
things that has happened a lot, and frankly, it has been a
head-scratcher for me, is that there have been people beaten up
on people who work for the government. And all of you are great
examples and I have been blessed to be surrounded by, and for
many years, people who have decided government service is
honorable work.
And I have never met anybody who has gone into a government
job looking for big money. I think most people who take
government jobs know that while it does offer stability, I do
not think that most people who seek public sector employment
are looking for a big payday. It just has not been my
experience.
And so, I have been disappointed at some of my colleagues
who think that they can get to a leaner, meaner Federal
Government just by beating up on the level of pay of Federal
employees, and that brings me to contractor compensation. I
have never seen anyone give a speech on the floor that we need
to do something about the high rate of salaries with
contractors.
And as you may well know, there have been attempts to put
in legislation, to put a cap on contractor salaries. I think
most Americans would be shocked to know that we have one now
and it is $693,000 a year. So right now, the Federal Government
can pay contractors up to almost 700 grand a year.
And my colleagues, Senators Boxer and Grassley, have
proposed changing this cap to $400,000 a year for all
contractor and subcontractor employees. Others have even
proposed lowering the cap even further. And for civilian
contracts, the cap only applies to senior executives. I believe
the cap should be extended to all contractor and subcontractor
employees.
I understand the Department of Defense has conducted a
survey of its nine top contractors and found that changing the
cap from $693,000 to $400,000 could save the agency $421
million. That is a big number. Let me ask you, do you at the
Army, Mr. Aronowitz, or you, Ms. Tomchek, have any idea how
much money you could save by lowering the cap that we would pay
in terms of contractor salaries?
Mr. Aronowitz. Ma'am, my office does not track that
information, but again, I would like to have the opportunity to
come back to the Subcommittee with that information.
Senator McCaskill. Ms. Tomchek.
Ms. Tomchek. I would say something similar. I am in the
Chief of Human Capital Office and I would be happy to
coordinate with my colleagues as we have our interdisciplinary
group and try to see if I could answer that question for you.
Senator McCaskill. And, Mr. Grimes, is there any data
available through your office that would get to this issue of
how many very well-paid executives are we paying for on some of
these service contracts?
Mr. Grimes. We do not collect that information, so we would
not have any idea really what people make in the service
contracts. I am sorry.
Senator McCaskill. I think that is something--I will tell
you this. I am not voting for--I do not support anymore
freezing of the salaries for Federal workers until we freeze
some salaries for contractors, particularly at that high level.
I think--and by the way, we are not telling private companies
what they can pay their people.
They can pay them whatever they want. If they want to pay
them more, they are welcome to do so. This is not about the
government telling private companies how much people should
make. It is about telling private companies how much the
government will pay. And there is a big difference there. If
they want to supplement someone's salaries with revenue streams
from other sources, that certainly is up to them. And this is
not, I think, a matter of government getting in the way of the
private sector.
But if you are going to do business with the Federal
Government, I think it is reasonable that you would assume that
we are not going to pay somebody 700 grand a year. I just think
that is reasonable and I hope that we can get that cap in place
and realize those savings.
The same thing with overhead costs. Looking at the data
that the Army collected in 2011, there are a few figures that
jumped out at me that I would like to look at a little closely.
If you look at the portfolio Knowledge-Based Services
Contracts, the total invoices were for $13 million.
Overhead costs accounted for $6.7 million of that, almost
50 percent of the overall costs. In that same portfolio,
Federal workspace was provided for 82 percent of the contracts,
and 71 percent of them had government issued equipment. So I am
trying to reconcile those numbers. You have a $13 million
contract. More than half of it, or just at half of it, is
overhead, but we are providing workspace for 82 percent of them
and we are issuing our equipment for 71 percent of them.
Is that the kind of thing that would jump out at you, Mr.
Aronowitz?
Mr. Aronowitz. Well, ma'am, let me, if I can, walk you
through the numbers and I can tell you how the Army is
beginning to analyze this data and how we are integrating with
the acquisition community. As you mentioned, for the Knowledge-
Based portfolio, about $13 billion total invoiced amount is
what the government paid. The direct labor costs, in other
words, what was paid or charged for direct labor hours, about
$4.8 billion.
About $1.5 billion for direct non-labor costs, and again,
this would be for packaging, special equipment, travel, and
then the amount, the overhead that you mentioned, the $6.7
billion, that is overhead and profit. And when we start to talk
about comparing Federal civilian employees' benefits versus
contractors and whether we use A-76 or the Department of
Defense's directive-type memorandum, the health and benefits
cost for the contract employees is in that $6.7 billion amount,
that overhead amount.
And so again, it is about 50, 51 percent, and again, that
includes the profit for the contractor as well as expenses that
he or she has for their employees for their health, benefits,
leave, and things of that nature, as well as their retirement.
Senator McCaskill. So that was a ``B'' not an ``M'' which
means I really want to get into it. Do we do apples-to-apples
on benefits?
Mr. Aronowitz. Again, within the DOD, by using the DTM, we
do have a fully burdened cost for our civilian and military
manpower. It is a very expensive tool.
Senator McCaskill. Especially because that also includes
all the pensions for active, right?
Mr. Aronowitz. Yes, ma'am. It is pensions, child care
costs, all the subsidies for groceries; for civilians, it is
the unpaid accrued retirement, so for both our military and
civilians fully burdened. For the contractors, the only figures
we use are what is invoiced to the government and what we pay.
Senator McCaskill. Well, I would really like to take a look
at that because I think that this has been the assumption that
we have been working on without data, which this hearing is all
about, is how can we get guidance from OMB so that there is
governmentwide assistance in the kind of decision tree that you
are trying to implement, Ms. Tomchek.
But second, this assumption that if you hire--and I have
told this story a million times. My dad peeled potatoes in
World War II. We are never going to have a soldier peel
potatoes again in theater, in a contingency. That will never
happen. So contracting is here to stay.
So the question is, the assumption has been--and I think
this is how we got way ahead of ourselves in contracting and
contingency, especially around the Logistics Civil Augmentation
Program (LOGCAP). The assumption was, our benefits are so
significant, that our overhead is so high that contractors just
intuitively are going to be cheaper. And I am not sure that we
ever held contractors' feet to the fire about what they were
billing us in that regard.
So I would love to see, on a typical contract, if you can
pull out the data for me what the benefit costs are versus the
benefit costs of our employees, and to make sure that the
underlying assumption that I think has driven a lot of these
decisions without good data, is even actually correct,
especially if you factor in some of these guys are making 600
grand a year, 700 grand a year. That takes up a lot of overhead
as it relates to benefits.
Mr. Aronowitz. Absolutely, ma'am.
Senator McCaskill. If the salaries are so much higher, then
pretty soon you are under water, even considering all the
overhead that we have as it relates to benefits, pensions, and
so forth, health care in our system. So if you could do that
for me, I would like to take a look at that.
Mr. Aronowitz. Yes, ma'am.
Senator McCaskill. But I did not understand until you
explained it that also was profit, so that also makes sense. I
thought it was just overhead. Thank you for walking through the
figures.
We have a number of more questions. There is a vote that is
being called right now, so I will adjourn this hearing. I want
to thank all three of you. And by the way, I know in the
contracting community I am not a popular person because of the
work I do in this area, but I do understand there are great
people that work for these companies and that do good work for
the Army and do good work for the Department of Homeland
Security.
It is not that they are the enemy. It is just that I do not
think our government has been very good at tracking the costs
and making sure that we are making the kind of analysis that
taxpayers have a right to expect. So I will look forward to
OMB's guidance. I will look forward to your input after that
guidance comes out.
If all three of you would make a note that we will be
following up with you to get your take on the guidance, once it
is issued, if you think it is workable, if you think it is
going to make a difference, and we will direct a number of
questions that we have that we still have not had answered yet
today to you in writing. I thank all three of you for being
here today and for the hard work you are doing on behalf of our
government.
[Whereupon, at 11:14 a.m., the subcommittee was adjourned.]
A P P E N D I X
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