August 2011 Vol. 15, Issue 1 $283,005 $122,373

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1 August 2011 Vol. 15, Issue 1 Outsourcing Government Services Might Be Bad Business Based on the current public debate regarding the salary comparisons of federal and private sector employees, POGO decided to take on the task of doing what others have not comparing total annual compensation for federal and private sector employees with federal contractor billable rates in order to determine if the current level of service contracting serves the public interest. Given the recent debt ceiling crisis, this analysis has become even more relevant approximately one-quarter of all discretionary spending now goes to service contractors. The current debate over pay differentials largely relies on the misconception that the government pays private sector compensation rates when it outsources services. POGO s report, Bad Business: Billions of Taxpayer Dollars Wasted on Hiring Contractors, indicates otherwise: in fact, it shows that the government regularly pays service contractors at rates far exceeding the cost of employing federal employees to perform comparable functions. POGO s study reviewed government data for federal, contractor, and private sector employees in 35 occupational categories, including accounting, budget analysis, contracting, food inspection, nursing, and security. Our findings confirm other studies that have found federal employees are compensated at a higher rate than their counterparts in the private sector, but we also found that the government pays a much higher rate for a contractor to perform the same services. In our study we found that the federal government approves service contracts deemed fair and reasonable that pay contractors 1.83 times more than the government pays federal employees in total compensation (which includes benefits), and more than 2 times more the total compensation paid in the private sector. In one case, contractor billable rates were 483 percent higher than the full compensation paid to federal employees performing comparable services. Federal employees were less expensive than contractors in 33 of the 35 occupational classifications POGO reviewed. Additionally, we found that the federal government has failed to determine how much money it saves or wastes by outsourcing, insourcing, or retaining services, and has no system for doing so. Considering the current heated discussion about budgetary savings, pay comparisons, and a federal employee pay freeze which only the Department of Energy has stated it will extend to its service contractors there is a need for the government to determine the actual cost of insourcing or outsourcing federal work. POGO urges policymakers to change their current focus on comparing federal and private sector salaries to analyzing the full costs, including all of the government s administrative and overhead costs, of hiring contractors and of hiring federal employees to perform comparable services. That change in focus is the only way to improve cost estimates for the entire federal workforce, including contractors, and to capture actual savings. $122,373 Benefits $32,558 Federal employee base compensation $89,815 Cost to taxpayer for equivalent work. $283,005 Contractor billable rate: $283,005 In This Issue: 1 Outsourcing Bad for Business? 2 Director s Letter 3 Revolving Regulators at SEC 3 30 Years of Government Accountability 4 POGO s DCAA Recommendations 4 Pressing Obama on Scientific Integrity 5 POGO s Reform Agenda 6 Go to POGO.org

2 Staff Danielle Brian, Executive Director Scott Amey, General Counsel Angela Canterbury, Director of Public Policy Paul Chassy, Ph.D., J.D., Investigator Danni Downing, Editor/COTS Director Abby Evans, Development Associate Ned Feder, M.D., Staff Scientist Ben Freeman, National Security Fellow Andre Francisco, Communications Associate Neil Gordon, Investigator Julie Koh, Finance Manager Johanna Mingos, Data Specialist Joe Newman, Director of Communications Chris Pabon, Director of Development Bryan Rahija, Blog Editor Keith Rutter, Director of Operations Pam Rutter, Web Manager Michael Smallberg, Investigator Nick Schwellenbach, Director of Investigations Peter Stockton, Senior Investigator Paul Thacker, Investigator Jake Wiens, Investigator Adam Zagorin, Journalist-in-Residence Dahna Black, Intern Rhya Ghose, Intern Rob Jones, Intern Alison Nabatoff, Intern Demoni Newman, Intern Rohail Premjee, Intern Rebecca Rotenberg, Intern Board of Directors David Hunter, Chair Lisa Baumgartner Bonds, Vice Chair Dina Rasor, Treasurer Ryan Alexander Henry Banta David Burnham Michael Cavallo Stacy Donohue (Observer) Charles Hamel Janine Jaquet Morton Mintz Nithi Vivatrat Anne Zill Letter from the Executive Director Dear Friends, Perhaps the one thing everyone agrees on is that we are facing enormous challenges in Washington. But the vast majority of the political discourse is focused on complaining about how bad things are and simplistically pointing fingers of blame. It seems to me the only thing this is accomplishing is to drive people away from constructive engagement and into their comfortable corners of cable television drivel. POGO has an alternative. We have pulled together a dozen reforms we believe will fundamentally improve how government functions, and (along with Taxpayers for Common Sense) a proposal to cut waste from national security spending by nearly $600 billion. As you will read in the article on page 5, in our effort to explore solutions, POGO has identified specific reforms that can and should be enacted now. Together, they will accomplish so much towards increasing accountability and reducing corrupting influences on sound policy, all while cutting wasteful spending. Who is opposed to those ideals? From progressives to tea party activists, we all share these goals. So why isn t it happening yet? I am asking each of you to find one reform featured in articles in this issue that appeals to you. Whether it s reining in the wasteful shadow government of contractors, getting parochial politics out of defense spending, or cutting back on multi-billion dollar Department of Energy construction projects with dubious missions (or you can go to pogo.org and check out the whole Good Government Guide of Reforms), we need your help to get Congress to pay attention. For many of our reforms, we have set up actions on our website that allow you to contact your Members of Congress to let them know you want them to work on that reform. Or, if you re interested in checking out our recommended cuts in national security spending, go to getinvolved.pogo.org/save600billion/. If you re excited about a reform or spending cut that we haven t set up for action yet, just let us know! The time to harness discontent and convert it into positive energy is not just during election season. Let s work together to push our elected officials to pursue meaningful systemic reforms that will make our government more accountable, effective, open, and ethical. Best, Danielle Brian, POGO Executive Director 2 Vol. 15, Issue 1

3 POGO Report Tracks Revolving Regulators at the SEC T he Securities and Exchange Commission (SEC) is tasked with a critical mission: protecting the investments of everyday Americans who turn to the markets to help secure their futures, pay for homes, and send children to college. However, the SEC has come under renewed criticism for being too close to the industry it oversees Wall Street especially in the aftermath of the financial crisis. In particular, several reports by the SEC Inspector General have raised troubling questions about whether the promise of future employment representing Wall Street firms unduly influences the SEC s oversight of certain firms and their clients. POGO recently launched an investigation to examine the revolving door through which former SEC employees go to work for or represent entities regulated by the SEC. In May, POGO released its report, Revolving Regulators: SEC Faces Ethics Challenges with Revolving Door, along with a database of post-employment statements that were filed by former SEC employees and obtained by POGO through the Freedom of Information Act. All told, POGO s report and database show that 219 former employees filed 789 statements between 2006 and 2010 announcing their intent to appear before the SEC or communicate with its staff on behalf of private clients. One former employee had to file 20 statements during this period in order to disclose all of his clients and the issues on which he expected to appear before the SEC. Another former employee filed his first statement just two days after leaving the agency. POGO recommended that Congress and the SEC strengthen and simplify the rules for former SEC employees, make all post-employment statements publicly available online, and extend the same post-employment regulations to other financial watchdog agencies. Now that the SEC has been given even greater authority to protect investors and markets from the next financial crisis, it s more important than ever for the public to see whose interests the SEC is truly representing. POGO Celebrates 30 Years W ith an assist from comedian Lewis Black and a cadre of wellwishers representing the good government community, whistleblowers, and past and present Members of Congress, the Project On Government Oversight pulled off a celebration in May that was three decades in the making. The reception, dinner, and panel discussion at the House of Sweden highlighted 30 years of accomplishments ranging from the organization s early work rooting out wasteful defense spending to its more recent investigations into oil industry and financial sector corruption. While Black, who is known for his biting social commentary, could not attend the event, he provided a videotaped toast and narrated a brief documentary about POGO s mission and successes at holding the government accountable. Black called POGO, The most a**-kicking, name-taking bunch of goody two-shoes good-government types in America. The evening was highlighted by a panel discussion moderated by the Huffington Post s Dan Froomkin and featuring Representative Jan Schakowsky (D-IL), former Representative Chris Shays (R-CT), and noted Wall Street maverick David Einhorn. Titled Wikileaks, Wall Street and Whistleblowers: The Role of Government Oversight, the discussion focused on the intersection of three areas of that have been at the core of POGO s work in recent years. We ve seen five different presidents and a slew of cabinet secretaries and agency directors come and go, but there s really no end in sight to our work no matter which political party is in power, the need for good government oversight will never go away, said Danielle Brian, who started at POGO as in intern in 1983 and became executive director in It has been a remarkable journey, and we re looking forward to another 30 years of exposing corruption and exploring solutions. Vol. 15, Issue 1 3

4 POGO Recommends Independence for DCAA In February, POGO Director of Investigations Nick Schwellenbach testified before the Senate Subcommittee on Contracting Oversight, chaired by Senator Claire McCaskill (D-MO), on how to improve government contract auditing. Nick confined most of his testimony to changes that should occur at the Defense Contract Audit Agency (DCAA) and recommended that the responsibility for auditing the hundreds of billions of dollars spent each year on defense and civilian contracts fall to a single, independent agency outside of the Pentagon s chain of command. According to DCAA s website, its mission is to perform all necessary contract audits for the Department of Defense and provide accounting and financial advisory services regarding contracts and subcontracts to all DoD Components responsible for procurement and contract administration..the DCAA shall provide contract audit services to other Federal agencies as appropriate. DCAA conducts the vast majority of contract audits in the federal government 76 percent of non-dod contract audits. However, because non-dod agencies must pay for DCAA services (unlike DoD components), there is a disincentive for them to use DCAA s auditing services. Furthermore, DCAA prioritizes DoD requests for its services over non-dod requests. As a result, agencies are increasingly turning to private sector auditors that charge more per hour of auditing services. Rather than creating a new bureaucracy, Congress could simply expand the duties of the existing DCAA, while making it independent of the DoD, Nick told the Subcommittee. Unlike most agencies, a new Federal Contract Audit Agency (FCAA) could save more money each year by uncovering waste and fraud than it would cost to run it. For instance, DCAA estimates that it saved taxpayers $5.10 for every $1 invested in it in fiscal year The FCAA would also provide a needed check on contractors, ensuring the government is not overcharged for goods and services, would be more efficient than the current system, and would provide greater incentive for non-dod agencies to actually use an auditor. It is essential that a new FCAA be given enough resources and authority to succeed. The DCAA is woefully understaffed, and there are also concerns that it is risk-averse, not having issued a subpoena to a contractor in more than 20 years. Contract auditors provide a great return on investment and save far more money than they cost, Nick said. We believe an FCAA makes sense, but even if DCAA remains within DoD, it needs to be as strong as possible. Scientific Integrity Letter to President Obama Since coming into office, President Obama has made several pledges for scientific integrity. Yet, there is reason to question whether the Administration is living up to those pledges. For instance, following the BP oil spill this last summer, the executive branch put out an estimate that the oil spill size was 4.9 million barrels. Days later they released a report on the oil s fate, concluding that most of it was gone. Because both the spill size estimate and the oil-fate report were only a few pages long and lacked any mathematical calculations, Hill staffers and members of the media began questioning the Administration. To get to the bottom of what happened, POGO worked with the office of BP Deepwater Horizon Oil Budget: What Happened To the Oil? The National Incident Command (NIC) assembled a number of interagency expert scientific teams to estimate the quantity of BP Deepwater Horizon oil that has been released from the well and the fate of that oil. The expertise of government scientists serving on these teams is complemented by nongovernmental and governmental specialists reviewing the calculations and conclusions. One team calculated the flow rate and total oil released. Led by Energy Secretary Steven Chu and United States Geological Survey (USGS) Director Marcia McNutt, this team announced on August 2, 2010, that it estimates that a total of 4.9 million barrels of oil has been released from the BP Deepwater Horizon well. A second interagency team, led by the Department of the Interior (DOI) and the National Oceanic and Atmospheric Administration (NOAA) developed a tool called the Oil Budget Calculator to determine what happened to the oil. The calculator uses the 4.9 million barrel estimate as its input and uses both direct measurements and the best scientific estimates available to date, to determine what has happened to the oil. The interagency scientific report below builds upon the calculator and summarizes the disposition of the oil to date. In summary, it is estimated that burning, skimming and direct recovery from the wellhead removed one quarter (25%) of the oil released from the wellhead. One quarter (25%) of the total oil naturally evaporated or dissolved, and just less than one quarter (24%) was dispersed (either naturally or as a result of operations) as microscopic droplets into G at rs. The residual amount just over one and weat ar balls, has washed This report on the fate of 4.9 billion gallons of oil released during the BP oil disaster is only 5 pages and did not include any calculations or supporting evidence. Representative Raul Grijalva (D-AZ), who was Chairman of a subcommittee on the House Natural Resources Committee. Our efforts resulted in various agencies, including the Environmental Protection Agency, the National Oceanic and Atmospheric Administration, and the Department of the Interior, turning over drafts of the reports, internal s, and other communications. Those drafts revealed that the Administration ignored the advice of its own science experts and appeared to have placed public relations before science. For instance, shortly before releasing the report, an official with NOAA wrote to other government scientists that, We have received strong pushback from WH [White House] on the cumulative total used in our graphic being more that [sic] the official 4.93 M bbls. Both POGO and Representative Grijalva wrote letters to the President. In our letter, we noted that the EPA was ignored, the executive branch s report put public relations first and science second, and that the White House appeared to meddle in the process. With this letter, we pressed the Administration to maintain greater scientific integrity when making complex, technical decisions. The Administration denied it had done anything wrong. Vol. 15, Issue 1 4

5 POGO Has the Solution for What s Ailing US This January, POGO released its recommendations to help put the country on the right track to a more effective, accountable, open, and ethical federal government one that is truly responsive to the needs of its citizens. POGO s Reform Agenda: A Good Government Guide for the 112th Congress includes more than 48 specific proposals for oversight and legislation on 12 priorities: opening the government so it s more accountable to the public; protecting federal whistleblowers, who protect taxpayers; stopping the drain of defense dollars; fixing the regulatory failures that led to the BP gulf oil disaster; protecting consumers and investors; curbing the costs of the shadow government of contractor employees; raising the ethical bar by slow the revolving door between government and industry; making advisors to our government more accountable; watchdogging Inspectors General, but also giving them more teeth; preventing foreign lobbyists from operating in secrecy; improving nuclear security and saving billions of taxpayer dollars; and making healthcare safer. We ve hit the ground running with these reforms. POGO has had several fruitful discussions about our proposals with lawmakers and their staff including both seasoned leaders and new Members of Congress. Since we issued our agenda, legislation has been introduced to strengthen and expand whistleblower protections for federal workers and to enact reforms to fix the failures that led to the BP Gulf Oil Disaster. We recently worked with Members of the House to pass a bill out of committee that would transform our ability to track federal spending, the Digital Accountability and Transparency Act (H.R. 2146). We, along with allies, successfully worked with Senators Patrick Leahy (D-VT) and John Cornyn (R-TX) to pass the The Faster FOIA Act with unanimous approval. We also worked with Senate offices to block an anti-speech provision that would have allowed federal employees to be punished for sharing classified information without any due process rights. In addition, POGO staff have testified before Congress on our ideas to improve and modernize the Freedom of Information Act and how to improve federal contract auditing, as well as before the Commission on Wartime Contracting in Iraq and Afghanistan on how Deficient Contractor Accountability POGO s Reform Recommendations Leaves Agencies and Taxpayers at Risk. Though there has been a lot of focus on the partisan divide and high potential for gridlock in Washington, POGO is confident about the possibilities of cooperation on many of our proposals. All sides at least agree that reducing waste, fraud, and abuse will save billions of taxpayer dollars, and we are finding interest in finding ways to get there. As POGO Executive Director Danielle Brian noted, Reforming government isn t about being red or blue, progressive or Tea Partier it s about recognizing what s in the best interest of the taxpayer and having the courage to set aside partisan politics. 1. Open the Government 2. Protect Federal Whistleblowers, Who Protect Taxpayers 3. Stop the Drain of Defense Dollars 4. Fix the Failures That Led to the BP Gulf Oil Disaster 5. Protect Consumers and Investors 6. Curb the Costs of the Shadow Government 7. Raise the Ethical Bar, Slow the Revolving Door 8. Make Advisors to Our Government More Accountable 9. Watchdog the Watchdogs, and Give Them More Teeth 10. Prevent Foreign Agents from Operating in Secrecy 11. Improve Nuclear Security and Save Billions of Taxpayer Dollars 12. Make Healthcare Safer Vol. 15, Issue 1 5

6 Find POGO on the Web! If you re on the web, you re bound to run into POGO. Every day we re posting stories on our blog. Follow us on Twitter, friend us on Facebook, or add us to your Google+ circle. We re producing videos for YouTube and Vimeo, and podcasts for itunes. Find short posts on Tumblr. No matter where you are on the web, POGO s investigations, articles, and action alerts will be there, too. Connect with POGO at Mission Statement The Project On Government Oversight is a nonpartisan independent watchdog that champions good government reforms. POGO s investigations into corruption, misconduct, and conflicts of interest achieve a more effective, accountable, open, and ethical federal government. POGO Project On Government Oversight 1100 G Street, NW, Suite 900 Washington, DC Non-Profit Organization U.S. Postage PAID Merrifield, VA Permit #2333 Return Service Requested