Thursday, February 10, 2011

Cutting Defense Contractors - Not So Fast . . .

Contractors are again coming under fire from all sides in the debate over spending cuts and budget oversight.  The Pentagon reports that they employ somewhere between 250,000 and 1 million contractors.  According to Secretary Gates, the Pentagon has become far too reliant on the private sector to do work that full-time government employees could do.  Secretary Gates admitted that the Pentagon really has no idea how many contractors it currently employs.

Although every branch, agency, organization, and sector of the federal government is full of waste and should be carefully reviewed for potential cost-savings - we need to look at the big picture.  Like most departments in the federal government there is a constant whining from the Pentagon that they lack the personnel and funding to accomplish required tasks.  Now Secretary Gates seems to saying that many contractors are a waste and that federal employees currently employed by the government can do the same work.  This statement does not even come close to the impression we normally get out of the Department of Defense or any other agency.

The reason contractors are so effective is that contracts are for a set period of time - usually between one to five years.  The government simply evaluates bids and services offered to fill the contract requirements, and then awards the contract.  Day-to-day operations are handled by the contractor , while the government is responsible for contract oversight and making payment.

When the contract period is over the relationship between contractor and government ends (unless of course they win another contract).  There are no legacy costs to the government and taxpayers associated with retirements, healthcare, etc.  With federal employees the situation is very different - there is no getting rid of them.  Once hired into the federal government federal employees are basically guaranteed a job for life.  Federal jobs include routine pay-raises, benefits, and retirement.

Here are a couple of considerations that need to be taken into account:

What happens when a contractor or federal employee are no longer needed to perform some task?

In the case of the contractor, there is a process knows as "Termination for Convenience of the Government."  Basically if the government can show that a good or service is no longer needed, or can be obtained from another source at a cheaper price the contract can be ended almost immediately with no further costs to the government.  As for the federal employee, in most cases they are transferred to another position in the federal government with equal (or better) pay.

What happens when contractors or federal employees do not perform as expected?

Contracts can be terminated with little notice through "Termination for Default" proceedings if the government determines that the contract requirements are not being met.  These termination proceedings end any further business relationship between the government and the contractor and end all further financial obligations.  For government employees who are not in their probationary (new-hire) period there is a long and drawn-0ut documentation and disciplinary process that must be followed before any action can be taken.  When disciplinary action is taken, it usually results in a lawsuit by the employee or by a union on behalf of the employee.

I firmly believe that contractors have allowed us to accomplish a lot of things in a cheaper and more efficient manner than we could have with public sector employees.  Both the public and private sector have their strengths and weaknesses, but before we start cutting contractors - just to cut - we need to take a hard look at whether they are more efficient and cheaper in the long-run than public employees.

Maybe we should be focusing on real spending cuts, and real efficiency improvements rather than backdoor methods of growing the public workforce and membership in public employee unions.

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