Government Contractors

The federal government spent nearly $12 billion in fiscal year 1992 on advisory and service contracts. An analysis of studies done by GAO, the Energy Department, and the Defense Department suggests that cost comparisons can be useful in deciding how to acquire needed services in the most cost effective way. Federal agencies are not now required to do such cost comparisons in deciding whether to contract for advisory and assistance services. Although the nine studies GAO reviewed indicate that it may be less expensive in some cases if services were done by federal workers rather than by contractors, all of the studies had limitations. The studies also varied in the extent to which they incorporated all possible cost factors. In addition to cost, GAO believes that agencies should consider other factors in deciding whether to contract out for advisory services, including quality, timeliness, the technical skills of federal employees, and the duration of the work to be done. GAO notes that a potential conflict exists between the administration's objectives of (1) giving federal managers the flexibility to obtain needed services from the best possible source and (2) downsizing the federal workforce.

GAO found that: (1) the Office of Management and Budget's (OMB) Circular A-76 requires agencies to conduct cost comparisons in determining whether to contract for commercial activities but does not require such cost comparisons for advisory and assistance services; (2) its review of nine cost-comparison studies for advisory and assistance services indicates that such comparisons can be useful when they include analysis of the cost elements that A-76 requires; (3) some studies limited their methodologies to comparing direct agency labor costs with contract labor costs; (4) only one of the nine studies considered such noncost factors as quality of service, timeliness of service, federal employee availability, variable work requirements, or whether services were short- or long-term; and (5) the proposed OMB expansion of its A-76 guidance to include advisory and assistance services is in accord with National Performance Review suggestions that individual agencies compete with other agencies and private companies to provide support services, agencies have the flexibility to obtain services from the best possible source, and agencies emphasize operation cost ceilings rather than personnel ceilings in making contracting decisions.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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