Outsourcing Is Not Always Cheaper

The Project on Government Oversight (POGO) has released a fascinating report comparing federal compensation to contracted services. In the period 2000 to 2011 outsourcing has gone from $200 to $5000 billion. Since we seem to be on a course to outsource more and more governmental activities, it makes sense to do something the government has not done - compare the costs of keeping the work in-house versus outsourcing it. It is amazing that the government has not done and does not do cost comparisons.

The conclusion of the report (emphasis added):

POGO’s study shows that the federal government approves service contract billing rates—deemed fair and reasonable—that pay contractors 1.83 times more than the government pays federal employees in total compensation, and more than 2 times the total compensation paid in the private sector for comparable services.

Of course, the study did not look at all government outsourcing. It looked at 35 job classifications, covering 550 service classifications. "In 33 of the 35 job classifications POGO looked at, the average contractor billing rate was significantly steeper than the average compensation for federal employees." In some cases the cost of outsourcing was five times that of in-house labor.

There are some limitations to the study largely due to the unavailability of some government data.  These limitations are spelled out in the report and really do not negate the basic conclusion - our money is being wasted.