Federal Workforce:

Revised Factors To Compare Government and Contractor Costs Are Appropriate

GGD-86-37: Published: Jan 24, 1986. Publicly Released: Jan 24, 1986.

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Pursuant to a congressional request, GAO reviewed the recent revisions to Office of Management and Budget (OMB) Circular A-76 to determine the appropriateness of: (1) increased cost factors for federal employee fringe benefits; (2) eliminating costs for one-time physical inventories; and (3) increased tax rates.

GAO noted that the circular requires government agencies to compare the cost of performing a function in-house to the cost of performing the work using a contractor. GAO found that: (1) in August 1985, OMB increased the cost factors for federal employee benefits from 27 percent to 36 percent; (2) the revised retirement cost factor included changes in work force demographics and updated economic assumptions about future pay raises, inflation, and interest rates; (3) the previous circular retirement factor needed to be updated to reflect changes in factors affecting the cost estimate; and (4) the new cost factor for health and life insurance reflected the increased cost of health benefits. GAO also found that: (1) the costs associated with the transfer of material to a contractor are to be included in cost comparisons; and (2) the new tax rates were developed to reflect more up-to-date data on taxes selected private industries are paying.

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