Contractors Cost More? No One Could Have Anticipated . . .

image courtsey of Tracy O
image courtsey of Tracy O

Back in March, Obama ordered the Office of Management and Budget to take a close look at the government’s contracting procedures, especially the use of outside contractors. Cost-plus contracts came under particular scrutiny, as did sole-source contracts.

One of the first agencies to make changes to their use of major outside contractors was the IRS. In April, they declined to renew a contract to outsource debt collections. Why? Partly because it overstepped the line of using private contractors for inherently governmental functions, but mostly because government debt collectors were a better investment when it came to getting more back for your buck:

The decision followed an extensive IRS review of the program, which showed that private collection agencies recouped less money per case than federal employees, closed fewer cases and were more expensive than in-house collectors.

The study, conducted by the IRS and reviewed by MITRE Corp., found that the cost of the IRS’ in-house program averaged $0.07 per dollar collected, while that of private debt-collection agencies was $0.24 per dollar recovered. The IRS program recouped 11 percent of debts assigned for collection and moved 28 percent of taxpayers into payment status, compared to 4 percent and 11 percent for private collection agencies.

Claire McCaskill is pushing DHS to get their contracts under control, and now the DOD is also stepping up. While everyone else in DC was watching the health insurance reform bill get passed by the Senate on Christmas Eve, Walter Pincus was poring over the the fine print of the DOD appropriations bill:

The Defense Department estimates it will save an average of $44,000 a year for every contractor it replaces with full-time federal personnel to perform critical defense jobs, according to the House-Senate conference report on the fiscal 2010 defense appropriation bill.

A week ago, OMB reported that it has found $19B in savings on acquisition contracts as a result of the studies they ordered in March. For eight years, the Bush administration used the war in Iraq and the mantra that privatization is best to justify expanding the use of contractors in all aspects of the government. Now we’re seeing the fruits of that folly, with excess spending for private profits and a poor return to the government for their investment.

I’m sure all the deficit hawks in the GOP who were screaming about the cost of the health care proposals will be jumping for joy at this about face in government contracting.

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