US Gov't Pays IT Contractors Twice As Much As Its Own IT Workers

bdcny7927 writes "The U.S. federal government pays outside IT contractors nearly twice as much for computer engineering services as it pays its own computer engineers, and 1.5 times more for IT management work, according to a non-profit watchdog group. 'The study points out that IT specifically "is widely outsourced throughout the federal government because of the assumption that IT companies provide vastly superior skills and cost savings." The Project on Government Oversight says its salary comparisons prove that those cost savings are not being realized. However, the comparisons do not address any cost savings that might be achieved through the skills, processes or systems that private IT services companies might deliver. The POGO researchers say that the federal government itself does not know how much money overall it saves or wastes with its sourcing decisions and has no system for doing so.'"

Comments

It's Called "Blame Pay"

[WrongSizeGlass]

Being able to point the finger of blame at an outside source has significant value.

Re:It's Called "Blame Pay"

[chill]

They do not get twice the pay. No way in hell.

Read the article again and you'll see that they compared the BILLING RATE for contractors. The people doing the work don't get that. Usually 30%+ is taken off the top by the contract house/management company.

Nor did they account for the benefits costs. The true cost of the employee should be salary plus benefits.

I say this as someone who not only has worked both sides of that fence, but is currently hiring for Federal IT (InfoSec) positions. I've seen an average of 100+ applicants for each position advertised and most are contractors desperate to become full-time Feds.

Re:It's Called "Blame Pay"

[cayenne8]

Actually, it isn't that bad at all.

You get yourself in the door of a good Federal contract.....form a "S" corp and get on as a subcontractor. You bill out at anywhere from $65-$80/hr....and you're golden.

This will keep you comfortable in salary....it is enough to figure to take off about 3-4 weeks a year for vacation and sick leave. You get yourself set up with a high deductible medical insurance policy (like $1200) and you use this ONLY for emergencies (heart attack ,etc), and with this you are eligible to set up a HSA (Health Savings Account) where you can stick back over $3K a year pre-tax.

As a 1099 contractor, you can write off all kinds of things, even mileage driving to the site daily if you have to drive...lots of perfectly legal deductibles.

A nice thing with the "S" corp, is that it can also save you a good deal of money on employment taxes, (SS and medicare). Do get a CPA for advice on this, but you can do something like:

Say you pay yourself a salary or about $40K through the company. You bill for $100K for the year.

You only have to pay SS and medicare on that $40K, the rest of the $60K falls through on your personal taxes at the end of the year (dividends or whatever you want to call them from the company) and you only pay normal state and federal income taxes on that portion.

About the only PITA, is the paperwork you need to do. YOu can get a service to handle your payroll if you want, but these days with electronic access, you can easily set up with your state and the feds and pay your taxes quarterly on the income portion. Just document stuff well, and it actually is a pretty nice way to go.

The HSA is something I like, and wish was more easily available..not just with high deductible plans. This isn't like the FSA's you get through your normal W2 employer, it isn't a "use it or lose it" type thing...it keeps building and building. At retirement, you can convert this to retirement funds. You can also invest from this account if you so wish...

When I was doing this...I had no problem paying for my routine meds and Dr. visits with my HSA money. Often when I'd tell the Dr. that I'd be paying...they'd give me at least a 15% discount right off the bat...

Unfortunately, the Feds have more and more, bastardized the contractor paradigm. They deal more and more exclusively with only the LARGE contract houses...and is harder these days to get a 1099 gig...the big houses want you on as a W2 employee.....and then, you get the worst of both worlds as far as job security and pay go. Even that still isn't horribly bad, but you lose all the freedom (no more fscking having to 'earn' vacation and sick leave hours....and all the tax breaks.

More difficult to find...but not impossible.

If nothing else, if you can get in on a Federal contracting IT program as a W2...get in, get some experience and foot in the door and meet people. Makes it much easier on the next gig...to get them to let you sub contract to them and go the 1099 route.

Re:It's Called "Blame Pay"

[cayenne8]

I say this as someone who not only has worked both sides of that fence, but is currently hiring for Federal IT (InfoSec) positions. I've seen an average of 100+ applicants for each position advertised and most are contractors desperate to become full-time Feds.

One reason for this is, that the contracting paradigm is no longer what it was before.

I'd posted earlier...the Feds, more and more...are only hiring contractors through large contracting houses. These contracting houses, hire people as W2 employees...they get the worst of both worlds. Sure they get benefits, health, etc....but they really lose out on what balances out the contracting life. In a normal contracting life, you get a very high bill rate. From this, you pay yourself, your vacation/sick time, etc. It makes up for the level of 'job security' that you have to put up with in being a contractor.

When you are a W2 employee of the contracting house....you don't get that high pay, but you still only have the job stability of the regular contractor....and you aren't really treated as a real 'employee' by anyone.

But, as I'd mentioned before...if you can get in to the contractor world, even as W2 for awhile, it can lead you to being able to get into a subcontractor role yourself, and do the 1099 gig.

But those are harder to find....so, with that being the case, yes...jumping over to the Federal side, for what can be a lifetime job, isn't a bad thing to look into...I've looked into it myself.

It helps if you've worked in the fed contracting world for awhile for that jump too....you get in good with those working in fed IT programs, they can help pull strings to get you in. And if you've been doing federal IT stuff, likely as not, you already have clearances, which also help grease the skids to jumping to the govt. side of things.

If you're getting a bit older, and have made some good money....jumping over to the govt. side isn't a bad thing, for the job security and extra benefits, along with 'decent' pay. It isn't contractor pay by a long shot in most cases....but it is much more secure.

Re:It's Called "Blame Pay"

[lucm]

I've been working less than 1.5 year as an employee for a government agency. Then I left, but that short employment time granted me a 320$ monthly payment for 20 years after I reach 65 y/o. It's not that much because it is an amount in today's money, but it was just 1.5 years. In that same time to get the same pension as a private contractor I would need to save close to 1000$ a month, and it would also require Mr Market to give me a steady 8-9% return each year until I retire.

As a government employee I also had all kinds of health benefits, paid gym membership, many discounts on hotels, plane tickets and car rental, lower premium on house and car insurance, and more vacation that I needed; I also got a tax break because of the pension fund, and more tax breaks if I decided to apply for an optional group IRA, where the government would put money if I declined the gym membership. And no paperwork, I just had to sign on the dotted lines when they hired me.

As a contractor I now make more than twice the salary, I can put all kinds of stuff on my tax and shuffle things around to save a buck here and there, I can takes months of vacation whenever I want, but there is just no way that in the long run I'll have a better pension.

Re:It's Called "Blame Pay"

[geekoid]

I am a government employee. A software developer. I have been for 6 years, and I was private sectors for a couple of decades prior.

I have been on both sides of this specific issue

The best IT staff I have worked with is the government employees. The most mediocre and bad were private sector. I suspect it has to do with it being easier to get a private sector job.

The software built in house lasts, ans lasts, and lasts. Out sourced work always runs longer and over, always has issues, and never is really going until years after the 'final roll out'.

I get calls pretty regularly from people in the private sector offering me jobs. Not interviews, actually over the phone jobs. Usually someone who knows me from my past gets into management and they look me up. I could make 50% more.

I don't take the because I value time, a lot. I work hard for 40 hours, done in 4 10's. Then I go home. If they need me, I get OT or comp time. I spend a lot of time with my family. I have friends making 100-140K, but 80-100 hour weeks. I did that for years, and what for? making some one else rich.

This "inefficient and lazy government worker" statements have been disproven time, and time again.

Re:It's Called "Blame Pay"

[PopeRatzo]

It also doesn't hurt that outside contractors don't get nearly the same benefits or protections that government employees do.

And it really doesn't hurt that an outside contracting firm can make a fat campaign contribution.

Funny, but it's actually pretty hard to find an example where the outsourcing or privatization of any government service actually turned out to be more efficient and less expensive than just having the government do the job.

And, as Chile learned, that goes double for privatized social security. The administrative costs went from about 2% when the government ran their social security to almost 20% when it was privatized. They are now trying to end privatization of social security in Chile and put it back in the government's hands for just that reason. Yet, it doesn't stop a certain group of candidates who were debating last night to win the nomination for the US presidency from holding up Chile's privatized social security as a success story.

Luckily...

[fuzzyfuzzyfungus]

Conveniently, we have plenty of shrill talking heads telling us that the private sector is always more efficient. That should be a viable substitute for so called "empirical evidence".

Really?

[ccguy]

People having life time jobs make less than people willing to work on a day-by-day basis, with twice the hours, triple the productivity, working in any location the job requires? Really?

I hope this is the first of a series of articles called 'real life eye openers'. To be distributed among public workers worldwide.

Re:Really?

[GameboyRMH]

Do you have any first-hand experience with this? Because I do, and in my experience the contractors are pampered telecommuters who only physically pop in a few times per week.

In fact we had a big issue a few years back where we had to replace a bunch of contractors with full-time government workers because they are that much more expensive and an accountability nightmare.

And since I've already stated where I work, I was one of the people who replaced a contractor. I take in somewhere between a third and a half of what the contractor did and you bet your ass I get more done as a full-time employee, even on just the 1 or 2 duties that the contractor had vs. the many more I also have now.

Re:Really?

[segfaultcoredump]

Sorry, I've worked both sides of this fence, and you should have stopped before you even typed the first word.

The contractors for the fed/military/etc do not work day to day, twice the hours or have triple the productivity.

They are given year+ long contracts, work the same hours, and have the same or less productivity. The perms face the exact same thing, their entire division can be wiped away with the stroke of a budgeting pen.

We are not talking about day labors here, all federal contracts are long and well defined. While your project may get canceled with the next _YEARLY_ budget, the odds of it suddenly going under are next to 0.

As a fed contractor, I never put in more than 40 hours a week. That is what we had in the budget, and to do more than that would have resulted in issues. The "cost+" contracts that would let me work 80 hour weeks and have the contracting agency get paid for it are few and far in between. Most are fixed at the rates and the number of hours, it does them no good to have you work more than your scheduled rate.

The productivity thing is pure bullshit. I've seen incompetent admins on both sides, but most are on the contracting side because the contracting firm wants to keep a larger % of the cut to themselves, and thus toss inexperienced newbies into the slot in the hopes that nobody will notice. The real kicker is that as a contractor you have an incentive to not really fix things, but to just patch them. After all, why fix something once and for all when your job depends on the customer needing to have you around to constantly fix something?

Re:Really?

[magamiako1]

God forbid we give people paid vacation time, sick days, holidays, and basic healthcare coverage. What has this world come to!?

Any surprise?

[papasui]

Temporary workers always make more money per hour than those doing it full time, its the trade off for the convience of having an on demand workforce. It's also very misleading to go strictly off per hour wage when your not including the total compansation package into the mix. Full-time employees will get PTO, insurance, 401k/pensions, etc. That isn't a small chunk of change.

Re:Any surprise?

[narcolepticjim]

The workers are often full-time employees of the contractor (e.g., General Dynamics IT). They get benefits along with their salary.

Re:Any surprise?

[Lunix Nutcase]

Actually they factored in the extra 40% cost of benefits on top of the government employees salaries and the private contractors were still 1.5-2 times more expensive. The people doing this study weren't so dumb as to not factor that in:

Because the contractor billing rates published by GSA include not only salaries but also other costs including benefits contractors provide their employees,[66] POGO added OPM’s 36.25 percent benefit rate to federal employee salaries[67] and BLS’s 33.5 percent loading to private sector employee salaries to reflect the full fringe benefit package paid to full-time employees in service-providing organizations that employ 500 or more workers.[68] All supporting data for this study are found in Table 1 and Appendices B through D.[69]

only twice as much?

[Enry]

That actually isn't that bad, given that the cost of an employee is way more than what their salary is (sick time, vacation time, health insurance, retirement, other benefits, etc.) all add up.

I'd be more concerned if it was 5-6x as much. 2x is a relative steal.

At the same time, if the feds only need someone for a few months for a specific project, it's a lot cheaper to bring in a consultant for the time needed than hire someone and have them working for you way too long.

Re:only twice as much?

[Antisyzygy]

Pretty sure they factored that it and still found them to be more expensive.

Actually they factored in the extra 40% cost of benefits on top of the government employees salaries and the private contractors were still 1.5-2 times more expensive. The people doing this study weren't so dumb as to not factor that in: Because the contractor billing rates published by GSA include not only salaries but also other costs including benefits contractors provide their employees,[66] POGO added OPM’s 36.25 percent benefit rate to federal employee salaries[67] and BLS’s 33.5 percent loading to private sector employee salaries to reflect the full fringe benefit package paid to full-time employees in service-providing organizations that employ 500 or more workers.[68] All supporting data for this study are found in Table 1 and Appendices B through D.[69]

That was posted by Lunix Nutcase above.

Worth every penny

[GlobalEcho]

I am guessing that in about half these cases, at the individual level, the contractors are former government employees who weren't getting paid their fair market value by the public sector. Given that a good IT worker is worth about 5 times a medioce one and 20 times a bad one, they're probably a much better value, on average, than those "left behind". Consulting budgets and the like also let huge bureaucracies get necessary work done that is internally impossible because it is "not in the budget".

The other half these cases, I am also guessing, will prove to be unnecessary wastes of money even worse than typical government IT initiatives.

I'm an independant contractor...

[Sooner Boomer]

...and I work for a state govt. I have to cover all my insurance costs, all the SS and other mandatory deductions, plus vacation and other paid time off. Some states are trying to mandate paid vacations and health insurance - even for baby sitters. This raises the costs considerably. PLUS - we are actually accountable: if we don't perform up to spec, we can lose money. A govt employee, esp. a federal employee has (in essence) a sinecure.

More costs involved.

[CapnStank]

Cost to run in-house IT/etc.:
- Personel wage
- Facilities
- Administrative costs
- Training
- + others

Cost to pay contractors:
- Wage/Contract cost

Typically they're similar or the contract will come in lower. Wage is not the only variable in the entire equation

Re:I don't work in the public sector.

[Hatta]

POGO's report is freely available on the web. If you actually look at their methodology, you'll see that they included benefits.

Because the contractor billing rates published by GSA include not only salaries but also other costs including benefits contractors provide their employees,[66] POGO added OPMâ(TM)s 36.25 percent benefit rate to federal employee salaries[67] and BLSâ(TM)s 33.5 percent loading to private sector employee salaries to reflect the full fringe benefit package paid to full-time employees in service-providing organizations that employ 500 or more workers

Re:$268,653 per year?

[Morty]

It's not about what the people make, it's about what the people cost. Remember that when the government hires a contractor, there is usually a contracting company. The company gets a lot more money per employee than the employee sees. Some of that is fair per-employee costs such as payroll taxes and employer-funded health care. Some of that is overhead -- the company's HR, payroll, accounting, contract offices, and profits come out of charging more per-employee.