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  • Government Insourcing: Hurting the Economy and Wasting Taxpayers' Dollars

    Since the beginning of the Obama administration, the federal government has steadily increased the number of jobs transferred from private contractors to the civil service. Insourcing was supposed to save money, but the results tell a different story.

    The effort stems from a March 4, 2009, administration memorandum on government contracting. President Obama described this initiative as, “…reforms in how government does business, which will save the American people up to $40 billion each year.”

    But would it really save money to increase the number of federal government employees at the expense of private sector contractors?

    According to a report by Heritage’s James Sherk, the disparity between the pay of public and private employees is so great that if they were compensated at the same rate, taxpayers would save an estimated $47 billion. Sherk’s study found that federal employees earn total compensation 30 percent to 40 percent greater than comparable private sector workers.

    The federal government already has a payroll of about 1.9 million federal employees not including men and women serving in the military and the U.S. Post Office, which is a federal corporation. An estimated 850,000 are in jobs that are commercial in nature.

    Many of these jobs could be contracted out to the private sector. If an activity the federal government does could be found in the yellow pages, then should be subjected to competition or evaluation to determine if the government should be involved doing it.

    The Heritage Foundation’s Ronald Utt, who was the director of the office of privatization under President Reagan, estimated that if this test was applied to federal activities that are commercial in nature, taxpayers could save $27 billion.

    For example, Defense Secretary Robert Gates began insourcing in 2009, but by August of this year revealed to reporters that, “As we were reducing contractors, we weren’t seeing the savings we had hoped from insourcing.”

    Similarly, the House Homeland Security Committee held a hearing in April about insourcing the guard work at federal buildings currently run by the Federal Protective Service. According to the Government Accountability Office, FPS provides security at about 9,000 buildings in the D.C. area and across the country for more than 1 million federal employees.

    The Business Coalition for Fair Competition, an alliance of associations, firms, think tanks, and organizations, opposes insourcing and believes the federal government should rely on the private sector, not engage in unfair competition with it. In a letter to the acting director of the Office of Monetary Budgeting in response to Gates’ comments and the current economic affairs of the nation coalition, President John Palatiello wrote:

    Given Secretary Gates’ recent acknowledgement that insourcing does not save money, and given the current state of the nation’s economy, BCFC respectfully urges OMB to issue a revision to the insourcing agenda calling for an immediate halt to all insourcing efforts throughout the federal government.

    The coalition argues that a moratorium on insourcing is necessary for the federal government to determine if insourcing actually saves money or if utilizing the private sector would be a wiser way to spend taxpayers’ dollars.

    Posted in Economics [slideshow_deploy]

    3 Responses to Government Insourcing: Hurting the Economy and Wasting Taxpayers' Dollars

    1. Mack McClain, Pinehu says:

      Where is John Galt

    2. DFAC1 says:

      Let’s look at Insourcing on a small scale. We are Government Catering/Food Service Contractors . We are a Woman owned local Small Business and focus on Military Contracts for Reserve/NG Units.

      Most are small Contracts to feed between 20 to 500 Soldiers per Meal …some Contracts are 1 day, some 2 day ..others might last 1 or 2 weeks.

      Our normal rate for a full Breakfast (Eggs/Bacon/Hash Browns/Pancakes/Toast/Pastries/ OJ/Coffee/Milk/Cereal /Fruit) runs from $4.00 to $4.50 PER SOLDIER

      Have you priced an Egg McMuffin lately ?

      The Salvation Army’s calculated cost is $11.25 per Senior Meal http://www.mchenrytownship.com/golden_diners.htm
      Back in 2006 , The Navy tried stopping Civilians from eating in the Gov subsidized Galley (Mess Hall) because of a 2005 Audit that proved the real cost of a ration (defined as a day’s meals – breakfast, lunch, and dinner) the Gov pays is $22.40, while the price charged to Civilian cash customers was only $9.05. http://www.flra.gov/fsip/finalact/06fs_075.html
      …Since that Study was done 5 years ago , I’m sure the actual costs are much higher today.

      We normally bid $20 per Soldier (per Day) for 3 FULL Meals –Given the layers of Bureaucracy involved (Admin costs) benefits/salaries/Food costs/Cleaning Supplies and Paper Goods , there is no way the Federal Gov can compete with our prices…OR the Quality/Value we provide our Soldiers.

      We use to Bid on 1 to 3 Contracts a Month ….Now that this “Insourcing” deal has taken our work away , we have only been asked to Bid on 3 Contracts over the last year.

      You can’t convince me that Food Services should be classified as “Inherently Governmental” ….and yet, no one can explain why the DoD has decided to spend more Money by doing it “in house”.

      The Federal funds use to go to local Contractors who also hired and bought supplies locally …that Money helped our local Economy.

      It’s gone now….

      • Barry says:

        I was a Supply Officer in the Navy. When President Bush started the push to outsource many of the services that our active duty navy food service workers used to provide, it eliminated the shore duty positions that those personnel used to fill. The sailors were then forced to accept back to back to back sea duty, or get out of the service. Many chose to leave. The true cost of outsourcing is underestimated.

        I would also argue that many low-cost providers are only low cost if all of the true costs are ignored. For example, a company hires workers at minimum wage, and does not provide health care, who will pay the true cost of that employee if not the employer? The public will pay. By allowing employers to pay less than a living wage, government allows employers to shift the true cost of their goods or services to the public. Think about it.

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