Army contractors earn higher salaries, study finds

Employees of contractors who work for the Army earn much higher average salaries than the Army's own civilian and military employees, according to preliminary data from an Army study. Contractors immediately questioned the study's results, arguing they could not stay in business if they paid the salary rates reported in the Army study. Army contractor employees earned an average of $108,000 in fiscal year 2000, while Army civilians made an average of $63,000 and military personnel earned an average $69,000, according to the Army study and data from the Army Cost and Economic Analysis Center. The contractor figure reflects wages alone, while the civilian and military figures represent wages and benefits, meaning the gap between average salaries in the public and private sector is even larger than these figures indicate. This finding is among the first results from a controversial Army study that required Army contractors to report an array of information on how they fulfill their contracts, including how much contract employees get paid, how many hours they work and who their customers are within the service. The Army project was halted last month when the Defense Department and the Office of Management and Budget concluded Army officials had violated the federal rulemaking process while setting up the study. But before the project was stopped, the Army collected information on $9.2 billion in service contracts--more than 40 percent of all such contracts--from 1,200 contractors. An analysis of this sample showed the Army employs a much smaller contractor workforce than previous Defense Department studies have found, but that contractor employees who work for the Army cost much more than was previously thought. For example, the Army employed the equivalent of about 30,000 contractor employees in fiscal 2000 to perform work on the $9.2 billion in service contracts covered by the study. In contrast, a March report by the Pentagon estimated that 231,000 contractors served the Army in fiscal 1999. While the 30,000 figure reflects only a portion--again, more than 40 percent--of Army service contracts, it suggests the total number of Army contractor employees is much lower than 231,000. This finding casts doubt on the notion that the government hires an enormous contractor workforce, according to Stan Soloway, president of the Professional Services Council, a trade association representing contractors. "I had always thought the [contractor] head count was less than was estimated, and this seems to support that," said Soloway. In another finding, the Army study showed the service spends $206,000 per contractor to cover the non-labor costs associated with contract work, including benefits, overhead, equipment, materials and the contractor's profit. Adding these non-labor costs to salary means the Army spent $314,000 per contract employee, according to the study. In contrast, the March Defense report estimated the Army spent roughly $95,000 on each contractor employee. These findings show why the Army study should be completed, according to an expert on the history of federal contracting. "Those numbers are stunning enough to beg further inquiry, and to place a strong burden on those who would stop the production of this kind of data," said Dan Guttman, a fellow with the National Academy of Public Administration. The House Armed Services Committee will scrutinize the average salary figures of contractor employees, according to a committee staffer. "I think the committee would react more strongly to the [$108,000] direct compensation charges, as they appear to be very high," said the staffer. The committee is working to reinstate the Army study in the fiscal 2002 budget, the staffer added. But contractors questioned the accuracy of the Army cost data and said that comparing average salaries between the public and private sectors is misleading. "I am highly suspicious of the validity of the $108,000 per [contractor] number," said Mark Filteau, president of Florida-based contractor Johnson Controls and a member of the Commercial Activities Panel, an organization created by Congress to review federal outsourcing issues. "No contractor could win a competitive procurement in today's federal market with cost factors as high as those indicated in the Army study," he said. The $108,000 average salary reflects the spectrum of contract work performed within the Army, according to Army data. For example, contractors working on research and development contracts earned an average salary of $140,000 in 2000, while contractors performing housekeeping services earned $56,000 on average. Research and development contracts, considered more expensive than other service contracts, accounted for 18 percent of the $9.2 billion sample. Filteau said contract data from the Defense Contract Audit Agency (DCAA) would have given the Army more reliable data for the study. While DCAA does not typically track firm, fixed-price contracts, which represent a sizable portion of the service contracts in the Army sample, the Army could have worked out an arrangement with DCAA, he said. Filteau and Soloway both said that public and private sector salaries should be compared on a job-for-job basis, instead of comparing averages between the two sectors. "In my experience, on a job assignment for job assignment basis, government employees frequently make more than their contractor counterparts," said Filteau. "If they didn't, we would never win an A-76 competition on cost." Soloway added that the total cost of contractor performance, and not the salaries paid to contractor employees, should be the standard for judging the cost-effectiveness of contractors. "The issue is not what an individual costs, it's what the total cost of performance is," said Soloway. "We all this see this everyday. How often do you deal with a vendor who is paying his or her employees more and delivering higher quality at a lower total cost?" But if individual contract employees are as expensive as the Army figures suggest, the Army might be able to get equal or better performance from more in-house employees at a lower total cost than what it is paying contractors, said Guttman. "Instead of hiring three or four senior federal employee lawyers at $100 an hour, the Army could hire one senior private law firm attorney at $400 an hour," he said. "But you would be quite hard pressed to show that an average law firm partner is three or four times as expert and efficient as an equivalently senior career Army department attorney." An official with the American Federation of Government Employees, the nation's largest federal employee union, said the Army study shows contractors are often not cost-effective. "We are clearly not getting the beneficial impact from contracting out that people believe," said John Threlkeld, a lobbyist with the union. "I must say I don't think it is any surprise that when they've determined that Army contractor employees cost more than was previously believed [the study] was shut down," he added. Within the Defense Department, the Army project is sure to fire debate over the best way to count contractors. While the Army study uses empirical data reported by contractors, the March 2001 report used information from the Federal Procurement Data System to estimate the total number of contractors working for the Pentagon. The Army report shows such estimates are unreliable, according to John Anderson, a program analyst in the Office of the Army assistant secretary for manpower and reserve affairs.

*Figure includes both wages and benefits