Pentagon Leaders Put Support Contractors on Notice for Deep Cuts

Defense Secretary Chuck Hagel and his top budget deputy on Tuesday signaled they intend to make deep cuts in contractor personnel who help manage programs in almost every sector of the Pentagon bureaucracy.

The Defense Department today employs an estimated 700,000 service contractors who, in many cases, work side-by-side with the civilian and military workforce at installations across the country and worldwide.

The new shift can be expected to return some clout into the hands of civil service employees who work at half the cost or even less, reversing a decades-old trend of farming out program management increasingly to pricey hired hands in the defense industry.

“We are currently reviewing all contractors, all the contracts we have,” Hagel testified at a Senate Appropriations Defense Subcommittee hearing.

To some extent, the secretary said, “we have no choice” about using contractors for functions that the Defense Department cannot perform itself.

“Contractors are part of any institution. We need them [for] certain skills, certain expertise,” Hagel said. “But there's no question that we're going to have to make some rather significant adjustments.”

Hagel told the panel he was recently briefed on the results of the Pentagon’s high-level “Strategic Choices and Management Review,” which he will continue to assess before making some fresh budget decisions.

Among the possible targets for cuts in coming years could be the modernization of nuclear platforms: A new Long-Range Strike bomber aircraft, replacements for today’s Ohio-class ballistic missile submarines, updated ICBMs or cruise missiles. Each of these efforts could also be affected by any move to reduce contractor support personnel.

The “skimmer” review -- so named for its “SCMR” acronym -- was to address how best to apportion $500 billion in congressionally mandated funding reductions over the next decade. If lawmakers repeal the 2011 Budget Control Act, lesser but nonetheless substantial cuts remain expected in 2014 and beyond.

Hagel made the remarks after Senator Dick Durbin (D-Ill.), the subcommittee chairman, said he is “concerned about the cost of the contractor workforce.”

“Recent reports have again emphasized that the average contract employee costs two to three times as much as the average DOD civilian employee for performing similar work,” Durbin said.

By way of example, the senator cited news reports that the self-proclaimed leaker of classified documents on government surveillance programs was a well-paid contractor working for the National Security Agency, despite what some critics see as thin credentials. The agency is a component of the Defense Department.

“Edward Snowden, who was an employee of Booz Allen, [was] working for one of our premier national security agencies as a contract employee,” Durbin said. “The story that's told is that he was a high school dropout, that he didn't finish his military obligation -- though he attempted -- and dropped out of community college. And it's also reported that he's being paid in the range of $200,000 a year as a contract employee.”

According to Pentagon data compiled three years ago, “contract employees comprised 22 percent of your department's workforce but accounted for 50 percent of its cost, $254 billion,” he said.

Defense Comptroller Robert Hale, also testifying at the session, said the figures Durbin cited appeared to be accurate.

“But let me say, whether or not a contractor or a civilian is cheaper or better, it really depends on the circumstances,” Hale testified. “There are some cases where we simply don't have the skills in the Department of Defense that we need, or it's a short- term job, [and it] wouldn't make any sense to grow them.”

In fact, he noted, the Pentagon still lacks an indigenous capability to perform financial audits on its own hundreds of billions of dollars in annual spending, despite intense criticism and promised remedies over dozens of years.

“I'm hiring a lot of contractors because they know how to do audits,” Hale said. “We don't yet.”

Noting that the Defense Department has put most new hires on hold and civilians have not received pay raises since 2011, the chairman suggested it is time to consider whether investing more in the department’s own non-uniformed work force might be more cost-effective than using contractors.

“If we're setting out to save money, has the civilian hiring freeze resulted in more or fewer contract employees?” Durbin asked. “And if so, how are you tracking the cost ramifications? Has contractor pay in the Department of Defense increased during the civilian hiring freeze?”

“I don't disagree with any of your general analysis on contractors,” Hagel said, noting that Defense spending has significantly grown across the board over the past decade in which the U.S. military has been involved in two major conflicts.

“The money flowed into different departments and institutions, because we felt they were required for the national security of this country,” he said. However, he added, “there will come a time, and it is now, where we're going to have to make some hard choices in the review of those.”

The Defense leaders promised to provide to Durbin additional data on how many contractor personnel support the department and their average salaries, when available.