Army has fewer contractors but they cost more, study shows

The Army employs a smaller contractor workforce than previous Defense Department studies have found, but contractors who work for the Army cost more than was previously thought, according to preliminary data from an Army study. These findings, released Friday in a notice in the Federal Register, are the first results from a controversial Army study of its contractor workforce. The study required Army contractors to report basic information on how they fulfill their contracts, including how much contractor employees get paid, how many hours they work and who their customers are within the service. The Army effort was halted last month when the Defense Department and 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 more than $9.2 billion in service contracts from 1,200 contractors. The Federal Register notice formally repealed the rule that had allowed the project to go forward. The notice, however, also included information about the part of the study that had been completed. The study is based on empirical data reported by contractors, in contrast to previous Pentagon studies, which used information from the Federal Procurement Data System to estimate the total number of contractors working for the Defense Department.

In earlier reports, Pentagon officials arrived at a contractor count by dividing the total dollar value of all service contracts by an estimate of what it costs to pay a contractor employee. A March report by the Pentagon used this method to estimate that 230,000 contractors served the Army in fiscal 1999. But preliminary results from the recent Army project suggest the Army has less than 230,000 contractors, a finding that means the cost estimates used to generate the 230,000 figure are probably too low. "Initial indications are that the numbers of contract manpower equivalents reported by contractors were lower (for the associated values) than those estimated employing algorithms currently used by the Department of the Army and the Department of Defense for reporting to Congress," said the Army in the notice. This means that Army service contract dollars support fewer contractor employees than previous estimates had figured, according to Dan Guttman, a fellow with the Johns Hopkins University School of Government. "It's saying that if you have a fixed pot of money spread across fewer people, the people are more expensive," he said. "This is a finding with significant budgetary implications and begs further explanation." The notice did not contain numerical results from the Army study. Army public affairs officials were unable to provide further information on the study. In a recent interview, Kenneth Oscar, the Army's acting acquisition chief, said the results of the Army study would be used to evaluate the Pentagon's method for estimating a count of contractors. While the notice complies with Defense instructions to halt the project, the Army also emphasized that it still needs empirical data on the contractor workforce. "The Army needs this information for a host of reasons, including planning, programming and budgeting, and prioritization and allocation of resources," said the Army in the Federal Register notice. The merits of the Army project have caused a stir within the Army, pitting personnel planners against procurement officials, according to Oscar.

"[Army] personnel people feel they need the data, while acquisition people have been working hard to streamline procurement opportunities and do acquisition reform," said Oscar.