Government Contractors:

Measuring Costs of Service Contractors Versus Federal Employees

GGD-94-95: Published: Mar 10, 1994. Publicly Released: Mar 10, 1994.

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Pursuant to a congressional request, GAO reviewed various comparisons of the costs of using contractors versus federal employees to perform services, focusing on the comparisons' methodologies, their strengths and weaknesses, and results.

GAO found that: (1) the Office of Management and Budget's (OMB) Circular A-76 requires agencies to conduct cost comparisons in determining whether to contract for commercial activities but does not require such cost comparisons for advisory and assistance services; (2) its review of nine cost-comparison studies for advisory and assistance services indicates that such comparisons can be useful when they include analysis of the cost elements that A-76 requires; (3) some studies limited their methodologies to comparing direct agency labor costs with contract labor costs; (4) only one of the nine studies considered such noncost factors as quality of service, timeliness of service, federal employee availability, variable work requirements, or whether services were short- or long-term; and (5) the proposed OMB expansion of its A-76 guidance to include advisory and assistance services is in accord with National Performance Review suggestions that individual agencies compete with other agencies and private companies to provide support services, agencies have the flexibility to obtain services from the best possible source, and agencies emphasize operation cost ceilings rather than personnel ceilings in making contracting decisions.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Following the report, Senator Pryor introduced language into the Federal Work Force Restructuring Act of 1994 (P.L. 103-226, March 30, 1994) that added the requirement that the activities affected by agency downsizing not be contracted out except in cases where a cost comparison showed that it was advantageous to the government. This legislative action, in effect, implemented the recommendation for those advisory and assistance services affected by agency downsizing.

    Matter: Congress may wish to explore with OMB the best way to reconcile the administration's objective of downsizing the government with the objective of providing federal agencies the flexibility to accomplish the government's work in the most cost-effective manner including, where needed, increased competition between the public and private sectors.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: This recommendation has been implemented. Senator Pryor introduced language into the Federal Workforce Restructuring Act of 1994 (P.L. 103-226) adding the requirement that the activities affected by agency downsizing not be contracted out except in cases where a cost comparison shows it is advantageous to the government. On August 19, 1994, OMB advised all agencies that, "In those instances where conversions to contract may be appropriate, agencies should rely on the cost comparison requirements of OMB Circular A-76, where applicable."

    Recommendation: As part of its overall effort to improve the procurement of services, OMB should extend a cost-comparison requirement to advisory and assistance services. As part of its guidance to agencies in preparing cost comparisons for advisory and assistance services, OMB should recognize that noncost factors also need to be considered and specify any circumstances that might exempt an agency from the cost-comparison requirement. However, if a decision is made not to conduct a cost comparison, such a decision should be adequately justified and documented.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  2. Status: Closed - Implemented

    Comments: On August 19, 1994, OMB advised all agencies that "In those instances where conversions to contract may be appropriate, agencies should rely on the cost comparison requirements of OMB Circular A-76, where applicable."

    Recommendation: OMB should work with Congress to explore ways to meet the administration's workforce reduction objective and provide agencies with sufficient authority and flexibility to accomplish the government's work in the most efficient and effective manner--either by using government employees or by contract, or some combination of both.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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