Cost Analysis: Privatizing OPM Investigations

Pursuant to a legislative requirement, GAO reviewed the Office of Personal Management's long-term cost analysis of its planned privatization of its investigative service. GAO noted that: (1) the OPM consultant concluded that the privatization of background investigations would save between $60 million and $120 million; (2) savings would come from reduced investigations and pension costs, and from corporate income taxes from the new corporation; (3) the savings would be reduced by the cost of severance pay for qualified terminated federal employees; (4) the consultant's assumptions and methodology were generally reasonable, but OPM provided it with an unreasonably high estimate of future OPM in-house costs for investigative services, and the consultant failed to amortize pension savings over a period of years, as it did for other projected savings; (5) OPM should have made an efficiency assessment of the investigation service to improve its future cost estimates; (6) amortizing the pension savings shows that net savings would not be realized until the fourth year of privatization; and (7) the new corporation may have difficulty in obtaining certain records used in background investigations.