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Federal Contractors Are $600 Screwdrivers 593

Posted by samzenpus
from the cost-of-doing-business dept.
ideonexus writes "Last month an article appeared on Slashdot about how the government pays IT contractors twice what it pays its own workers. Missing from the article was how much the IT contractor pays its own workers. After working for a federal contractor for 10 years, a document accidentally leaked to employees by the contractor illustrated the incredible disparity between what the contractor was paying us and what they were charging the government. Like most contracts according to the GAO, the government provided our offices, utilities, computers, and training, leaving our salaries as the only overhead to the IT contractor, giving them an incredible incentive to keep them as low as possible to maximize profits. When the top 100 defense contractors cost taxpayers $306 billion, eliminating the federal contractor middle-man seems like an obvious place to start the austerity measures."
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Federal Contractors Are $600 Screwdrivers

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  • Fear the flat tax. (Score:0, Informative)

    by Anonymous Coward on Monday October 31, 2011 @10:37AM (#37895438)
    The Flat Tax proposal is nothing but a very poorly disguised tax break for the wealthy. Unfortunately, many otherwise reasonable people will be snookered by the misinformation being promulgated by the Koch brothers, and vote for it. This would be a mistake. When I was young, I didn't believe that money could buy political power. Now, I'm seeing it firsthand.
  • by TheLink (130905) on Monday October 31, 2011 @10:40AM (#37895474) Journal

    Every time a worker leaves the Federal Payroll to become a private-sector Federal Contractor, the President and Congress can claim to be reducing the size of government. They publicize the fact that âoe1990 total government employment⦠was 5.23 million,â which fell to âoe2.84 million in 2009.â

    There you go, here's what happens when you voters keep asking for small government. That's why I've said time and time again, the problem is not quantity. It's quality. It's not the quantity of Government that matters so much as the quality.

    You can have these jokers reducing the size of Government to near zero, but if everything is done by such contractors, it makes no difference or it's even worse.

    Private Corporations don't even have to pretend to listen to the voters. The Government does, hence this "small government initiative".

  • by hjf (703092) on Monday October 31, 2011 @10:55AM (#37895708) Homepage

    Not every kind of worker is the same. You're an educated person, but a miner, truck driver, or some other low-end worker usually can't negotiate any kind of benefits or anything. Either because no one will hear them, for fear of being fired (or flagged...), or simply because they're too... "uneducated" to know what their rights are.

    A company is always bigger than a single person. And a company can afford a lawyer (or an army of them) to screw you, while you usually don't have resources to do that. That's why unions exist.

    But unions need regulations, just like companies need regulations. What folks here don't seem to understand is that any "unregulated" area WILL get exploited, and the bigger guy always wins. That's the danger, not "government intrusion".

  • Re:Um.... (Score:5, Informative)

    by MacGyver2210 (1053110) on Monday October 31, 2011 @10:56AM (#37895738)

    "You don't actually think they spend $20,000.00 on a hammer, $30,000.00 on a toilet seat do you?" - Independence Day, 1996

  • by k6mfw (1182893) on Monday October 31, 2011 @10:57AM (#37895748)

    This whole concept of contracting is like outsourcing, looks good on paper as it saves costs. Then politicos can brag how they are reducing costs because there are less govt workers (though there are a zillion more contractors), i.e. NASA or number of troops overseas (much of those positions replaced by contractors). Only advantage of contractor is it is easier to fire someone than a civil servant. Don't think unions are all powerful and all members have juicy benefit plans and pensions (they don't). Now people like to say how much better contractors are at saving money (uhmm, J35 fighter has doubled cost in past five years and its contractors have a lot of political power like lobbyists and work less regulation than before so don't blame govt people. Oh, did you know the J-35 began as CALF, Common Affordable Lightweight Fighter?).

    Others say contractors are good because it is private enterprise, you gotta work hard to make it successful unlike govt which don't have to make profits or deal with customers. However, pretty much all federal contractors have only one customer, the federal government so they are government. I see almost all these companies could never compete in the "real world." And those that do work in the real world are highly dependent on government contracts. Which I think is why federal spending has skyrocketed because it is the only big thing in town, as all other industries have collapsed.

    There was a time when becoming a police officer or working some other govt position was considered low pay (especially NASA civil service in the 80s). Right now it looks really good because all other middle class jobs have collapsed. But even for them salaries and bennies are dubious.

  • by Anonymous Coward on Monday October 31, 2011 @11:00AM (#37895794)

    Been working Federal IT at various agencies for 20 years and the story is the same today as it was twenty years ago. You can't reach high quality/niche programmers on the Federal pay scale in the DC area. Scoff if you want, but we just had a top notch contractor successfully apply and get an offer for Federal work, only to turn down $137K plus bens. Great candidate, couldn't reach his rate. I've seen this time and time again.

    That same contractor bills out near $300K per annum.

    The system is skewed towards the contracting companies. Keeping Federal IT pay rates down below the industry average for our area guarantees big pay days for the contracting companies. These companies were supposed to be a panacea for the inefficient Federal worker. All that they have become is YAFE (yet another Federal entitlement).

    And yes, some of the contractors have been in the same position for DECADES. Same lifetime entitlement.

  • by Anonymous Coward on Monday October 31, 2011 @11:00AM (#37895806)

    I run a small business where we have contractors. I have been a government contractor in the past, but my company hasn't done any government work since we got started a year ago. Our employees know their billing rates vs what they're actually paid and haven't complained.

    Our top rate is $120/hr, which would work out to be 240k/year if the person worked 40 hrs a week for 50 weeks (2 weeks pto) .. 2000 hrs.

    But, we don't always have our contractors out full time. Sometimes they're on the bench (working on internal projects).. We have to cover that cost, or we have to lay them off. Essentially we're building up a bank account so that we can afford to keep employees that aren't working for the client at the moment. That plus the other overheads we have really eat into the company profit.

    So.. even if we're paying $110k/year to the guy we're billing at $120/hr, it can be a close thing.

  • by hrvatska (790627) on Monday October 31, 2011 @11:00AM (#37895812)
    What benefits do unionized federal employees received that non-unionized do not? Most federal employees are not in unions. Federal employees can not be compelled to join a union. Federal unions can’t advocate striking or actually go on strike. According to the U.S. Federal Code, federal employees are not allowed to strike. It is deemed an unfair labor practice which can result in the employment termination and the revoking of the union’s status as a recognized labor organization. Recall how all the air traffic controllers were summarily fired and replaced thirty years ago.
  • by MacGyver2210 (1053110) on Monday October 31, 2011 @11:04AM (#37895856)

    And you're basing this on what evidence? I see no figures on this.

    The fact is, people are pocketing a significant portion of government contract payments, and it's not the people doing the actual work. It's the guy in the suit who "manages" the teams, and says "You let ME worry about that" to everything while driving a fucking $200,000 Mercedes.

    The unions and payroll have absolutely nothing to do with the inflated cost of government contracting, they're just an easy target recently vilified by the far right and other class-warfare commencing scumbag motherfuckers. So go join your party on the right, tea bagger.

    For what it's worth, most union dues/benefits are paid for by the employee themselves through dues and fees. It is a rare occurrence that an employer takes care of all the costs.

    Pensions are a stupid employment incentive all around, but it's not the unions' faults. Keep paying people's salary even after they retire? Yeah, that's a marvelous idea for the bottom line.

  • by Anonymous Coward on Monday October 31, 2011 @11:08AM (#37895926)

    By using contractors the government is converting all the various costs (salary, benefits, tax costs, personnel management, leave, pension etc...) into an up-front payment. Much easier to manage year to year.

  • Re:Um.... (Score:4, Informative)

    by Chapter80 (926879) on Monday October 31, 2011 @11:10AM (#37895966)

    As a small businessperson, I can tell you that the overwhelming amount of bullshit required to bid on government contracts (especially Federal government contracts), combined with a low probability of successful bids, means that it's imperative that you inflate the bids to cover costs, or avoid bidding on them.

    Want to cut the price? Cut out the red tape.

  • by david.emery (127135) on Monday October 31, 2011 @11:12AM (#37896002)

    If you remember the stories about the $600 hammers, and you actually read the details, what you find out is that the hammer cost $10, and the contracting overhead cost about $500. That includes all the rules for government procurement, Federal Acquisition Regulation compliance, EEOE, small and woman/minority owned business requirements, limits on subcontracting, requirements for exhaustive financial/time accounting, etc, etc, etc.

    Most of those overhead requirements are placed for good reasons, either for social policies (e.g. small business/minority business) or for fiscal or technical accountability (e.g. time accounting, facility security, etc.) But when you add them all up, you have a lot of overhead for doing government contracting that you don't have in business. It's part of the reason why government is inherently inefficient.

  • by mbone (558574) on Monday October 31, 2011 @11:16AM (#37896066)

    Labor unions have had policies put in place by which government employees are impossible to fire if you don't fire them within one year.

    Uh, the civil service protections of federal workers have nothing to do with unions. They started with the Pendleton Civil Service Reform Act of 1883, which was motivated by various scandals around "the spoils system" and the shooting of President James Garfield by an office seeker.

    When I worked for the DOD the only people I knew in unions were government contractors (many military bases and NASA installations had union staff and I don't believe that that has changed). I came to have a great respect for the Teamsters, who negotiated very hard and worked very hard.

  • Been there, seen it (Score:5, Informative)

    by BenEnglishAtHome (449670) on Monday October 31, 2011 @11:22AM (#37896156)

    I was a government IT worker in the U.S. Treasury for decades. Before I retired, contractors were being brought in to replace workers in my position. One guy comes to us fresh from a front-line support position at, believe it or not, Best Buy. After a long while, he turned out to be not so bad, trainable, and useful. It took about a year to get him up to speed.

    At some point, he decided he trusted me enough to talk about pay. I was shocked. Why should he treat salaries as some sort of secret? As a public employee, my pay is known to anyone who wants to look it up. I showed him how to look up what anyone in the organization made, showed him my salary, and couldn't imagine why anyone would think of this stuff as proprietary information.

    In his case, though, I can see why his employer had gone to great pains to create the impression that salaries were some kind of secret. He was doing the same work as a first-tier support employee but was being paid roughly one-fourth as much money. The contract to his employer was sufficient to support employees like me (the agency was paying roughly twice the annual salary of a senior computer specialist for each contractor who reported to a job site) yet the contractor simply took the contract, took a cut, and subcontracted the rest out. The subcontractor took a cut and subcontracted the rest out. The next level subcontractor took a cut and hired an out-of-work Best Buy leftover to report to the job for a pitifully small percentage of the original contract payment.

    It was a multi-level sham. I was annoyed at the waste. The contract guy was annoyed that he wasn't making any more money. Overall, contracting for these positions was a completely stupid thing to do that only accomplished just one thing - slicing off shares of pure profit to a few middlemen. Ultimately, the workers on the ground and their customers got screwed and the U.S. government got a *very* poor return for the money spent.

    Naturally, once the guy was fully trained and providing real value to the organization, budget cuts forced cancellation of the support contract and he was gone in a flash. All that training time, all that productivity diverted from helping customers to bringing him up to speed was, in an instant, flushed down the toilet.

    I'm sure it's not always the case, but contracting for services like this by the government is, in every case where I've gotten a close look, a completely stupid thing to do.

  • Re:Tax evasion (Score:4, Informative)

    by butlerm (3112) on Monday October 31, 2011 @11:26AM (#37896222)

    If the company is making a profit and you pay out distributions equivalent or greater to what you should be earning as an employee in order to avoid payroll taxes, you can get in trouble. And yes, there have been court cases about this very issue. See here [sprouselaw.com], for example.

  • by PortHaven (242123) on Monday October 31, 2011 @11:32AM (#37896340) Homepage

    Essentially, there seems to be a debate regarding government employees vs contractors (at 2x the rate).

    But the truth of the matter is those contractors never see that double income. All the talk of how 2x let's you pay for your own benefits is hogwash.

    Here is how the system works for the most part. Rather than having government employees hired for a task which is likely to be short-term (1-5 years). The government contracts it out. Instead of hiring a $50K-$75K employee they pay a major contractor (Northrup, Lockheed, L3, Accenture, etc, etc, etc) $100-$150K to fill that position.

    These companies then hire from vendors adding an additional tier to the puzzle. (If the contractor is a foriegnor there may be a third party involved in sponsoring their visa.) So of that $100K-$150K paid by .gov for that contractor. The contractor might see $40K-$75K. All the rest is eaten up by middle-men.

    But it doesn't stop there. The way the contract system works, it is not uncommon for one of these contracting firms to mass hire dozens of people toward the end of a fiscal year. They do this so they can use up (bill the government) for every dollar the contract allows for. Upon the end of the fiscal year many of those contractors will be let go. No severance. Nothing.

    Essentially, the contract system allows for an at-will hire and fire. Which in an economy that has 9%-16% unemployment becomes a gross abuse. You literally watch people hired for two weeks only to be let go. Positions are advertised as part of a long-term contract. New hires are often misled into thinking there is an element of job security. Some even leave jobs for these positions only to reach a very rude awakening.

    Seriously, Unions need to quit wasting their $$$ being campaign fundraisers and get on the ball with what unions were all about. Defense of the worker.

    In the current market, a potential new hire has little to no ability to negotiate on contract. And if misled, lied to, etc - has even less recourse.

    There needs to be a fraud law that mandates whether a position is long-term (min. 1 year) or merely short term. If fraudulently mis-portrayed, than the hiring firm would be obligated to pay the employee for one year of time.

    This would help end the abuse of contractors that is rampant in government work.

  • by compro01 (777531) on Monday October 31, 2011 @11:32AM (#37896342)

    And when they talk about how much Federal employees make vs Contractors they never factor in that a Contractor doesn't get any benefits, any life insurance, any health insurance, or anything.

    Except that they did 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, POGO added OPM’s 36.25 percent benefit rate to federal employee salaries

    http://www.pogo.org/pogo-files/reports/contract-oversight/bad-business/co-gp-20110913.html#Summary%20of%20Methodology [pogo.org]

  • by webheaded (997188) on Monday October 31, 2011 @11:33AM (#37896352) Homepage
    I question how much more difficult this is with a Union than firing someone with approval from the HR department at a typical bigger business. At my work, it's relatively difficult to fire someone, but if you keep very good documentation...once they've screwed up enough, their ass is grass. You need proper justification. Yeah it's annoying but quite frankly...tough shit. I'd prefer it be a little harder to fire people than the bullshit we've seen in the past. Without a good HR department, bosses pretty much do whatever the hell they want. I've seen this side too where HR basically works WITH the managers; instead of trying to prevent the firings they pretty much help them do it.

    I'd love to see proof of the guy punching someone in the face and not getting fired. I find that extremely hard to believe. There may be other circumstances or the poster may be lying. Like you said...I'm pretty sure he'd be arrested pretty much immediately. :p
  • by asylumx (881307) on Monday October 31, 2011 @11:47AM (#37896574)

    2. Fire the dead weight left and right (liberals: boooo)

    I just want to point out, most liberals are not against firing dead weight, but they just want the person doing the firing to actually have a reason (prove that the firee is actually dead weight). At-will termination means you can fire someone just because you don't like the shoes they wear, for example.

  • by HopefulIntern (1759406) on Monday October 31, 2011 @11:50AM (#37896622)
    I think the point being made is that it was a permanent employee, and because of their unions they cannot be fired for anything. A lot of the responses here seem to think it was a contractor that punched the boss, to me it reads like it was a permanent employee.
  • Re:Um.... (Score:3, Informative)

    by Mes (124637) on Monday October 31, 2011 @01:09PM (#37897740)

    1) Ampco Non-Sparking Safety Hammer from Amazon: $56.99
    2) Bill $500 to the Feds
    3) Profit

  • Re:Um.... (Score:5, Informative)

    by hey! (33014) on Monday October 31, 2011 @04:00PM (#37900204) Homepage Journal

    (1) Amazon did not exist in 1980 when this story emerged.
    (2) There never actually was a $600 hammer. The actual (averaged) price to the program was $435.
    (3) That $435 included $420 the design and testing of the toolkit, amortized over each thing in it. For example, if you paid the vendor a nickel for an allen key, you'd call that $420.05, even though you only paid a nickel. The actual marginal cost (i.e. what the government actually paid the vendor) for the hammer in question was $15.
    (4) Using the same accounting methods that arrived at $435 for the hammer would yield $476.99 for your Ampco hammer, regardless of what you actually paid the vendor for it.

    What does this show? That you should beware when somebody peddles this kind of story. They're more interested in how effectively the story sways your opinion than whether the story is true.

    Many of the biggest money wasters in government are stupid attempts to save money, as in the case we are discussion here.

The reason that every major university maintains a department of mathematics is that it's cheaper than institutionalizing all those people.

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