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Boom Town: A Federal Contracting Explosion & The Collateral Damage

I’ve been in federal services sales for nearly a decade now. This is really just another way of saying that, while the rest of my nation (and my state) struggled through the Great Recession, I was hiding out in a $300 billion alternate universe.

You see, since 2000, as markets around the world got crushed, U.S. government spending on non-construction, non-R&D services increased by 140%. What a wondrous time to be a federal sales guy!

Or is it?

Wait, $300 billion! Just how many of you contractors are there?!

Good question.

Back in May of 2015, the Congressional Budget Office (COB) wrote a six page memo that basically says, “beats me.”

Let’s think on that for a second. Service contracts account for a significant percentage of federal spending. Positions of vital importance to national security, health and welfare are filled by contractors. Yet we have no idea how many of us are running around federal buildings, accessing government systems and racking up billable hours.

Not even a guess?

DoD at least tries to keep count. Various estimates of Full Time Equivalent (FTE) contractors supporting DoD at any given moment come in between 700,000 to 800,000 personnel. That’s about half the number of active duty personnel and it’s roughly equal to the number of DoD civilian employees.

So contractors account for about 25% of DoD’s total active full time workforce (not counting reservists).

But that’s just DoD.

As for the federal civil world, like the CBO said, we really have no idea. We do know that services contracts account for about 80% of all fed civil contract spending. We also know that some agencies are staffed predominantly by contractors. NASA, by their own numbers, has two contractors for every one government employee. HHS’s implementation of the Affordable Care Act has been manna from the contracting heavens. And the U.S. Department of Homeland Security thinks it may have 100,000 contractors — though it could be more like 200,000. Who knows?

So we really have no idea?

This is admittedly a total SWAG, but I’m willing to take a guess. Based on an analysis of average rates against total services spending, I have an idea as to the number of contractor FTEs working in fed civil.

1.2 million.

Add to that the 700,000 or so contractors working for DoD, and we have about 2 million contractors working on behalf of both federal civilian and DoD. Coincidentally 2 million people is roughly the same as the number of non-postal service civilian employees currently serving the entire federal government.

In other words, for every federal employee, we have roughly one contractor.

Sounds pretty sweet to be a federal sales guy.

A lot of people have made sick money in federal contracting (some, much less so). This explosion in contracting has gone too far. It’s bad for the government. But it’s also bad for industry.

Wait, how is making preposterous amounts of money bad for industry!?

Well let’s start with why this is bad for government. I won’t get into the contractor versus fed cost comparison question, other than to say that smart folks have comprehensively tackled that issue. Groups like the Project on Government Oversight (POGO). We can quibble with POGO’s methodology. But at the end of the day, I’m pretty sure it’s spot on. Hour per hour, services contractors cost more than federal employees.

But the cost issue is a smokescreen. The government doesn’t engage services contractors to save money…even though they occasionally make that argument. The government outsources because it’s easier.

In the past decade, the government’s mission has exploded. Political rhetoric aside, both parties have asked federal agencies to shoulder enormous burdens and take on extreme responsibility, all while launching repeated assaults on the federal workforce.

Instead of taking on the tough, politically divisive issue of figuring out how to structure and manage a federal workforce built for the long-haul, it is far easier to slap together a request for proposal, award a five-year contract and let contractors sort it all out. This is expedient, sure. But we’re left with a hollow government, escalating contracting costs and a federal acquisitions corps that can barely keep up.

Seems bad for government, but you’re not sending your bonus check to POGO!

For more than a decade, our federal partners have come to our industry under the pretense of seeking innovative solutions to the challenges of modern government. But usually they just want bodies, provided as quickly and cheaply as possible.

Such is the government’s market-shaping power that our industry has slowly transformed to do just that, and not much else. Even once great tech companies, the groups behind some of our nation’s most amazing technological achievements, now look less like innovative leaders and more like staffing firms.

Is it any wonder that we, as an industry, can’t seem to get out of our own way? That our President flies in ancient aircraft? That we struggle to build a 21st century air traffic system? That we can’t even roll out a modern website?

The explosion in contracting has indeed hollowed out our government. But it has done the same to our industry.

Can we fix it?

Yes.

There are totally reasonable explanations for why we find ourselves in this position. But these are explanations, not excuses. Let’s explore some possible solutions:

A little honesty, please. Sometimes the government has no choice but to reach out to the private sector for staff. But when the government just needs staff, be honest about it and hire staffing firms.

Lunarline will never be able to compete with pure staffing firms. We invest in, and are organized to, deliver innovative cyber security solutions. Staffing firms, on the other hand, are meant to efficiently provide personnel as quickly as possible. We will never be able to compete with them. Not on speed. And not on price.

When procurements are really just staffing requirements in disguise, let’s be straightforward about it. Then let’s restructure those procurements to enable the companies best capable of filling those needs to compete.

Inherently whaaaat? In deciding whether or not to contract out a given position, federal decision makers first must determine if a position is “inherently governmental.” If not, they’re free to contract it out.

But this is really just a loophole masquerading as operational guidance.

There are things the private sector is great at. There are things the government is great at. We need a real framework that helps decision makers predict, with confidence, which group is most likely to succeed against any specific requirement. This is harder than it sounds. But figuring it out is vital to the health of both government and industry.

Take a hint. Creating the framework I just described will be tough. But it may help if federal acquisitions folks look across the aisle to their counterparts in the private sector.

I’m pretty sure the federal and private sector acquisitions communities never talk to each other. Which is unfortunate because, having sold to both groups, I can tell you that they each have different strengths and weaknesses, and unique approaches to preparing and fulfilling requirements.

If federal and private sector acquisitions people got together to trade notes, they may be able to solve each other’s challenges. For example, private sector acquisitions people are great at structuring acquisitions to address my next suggestion.

Sustain this! Think about your house. You may hire a contractor to design and build you a new kitchen. And you may call in a pro to replace something when it breaks. But you don’t keep them around all day, every day, running the garbage disposal or loading the dishwasher, dreaming up new and innovative ways to charge you money.

Unless that is, you’re the government. Contractors ink long-term agreements to build and sustain systems. Then they spend the next five to 10 contract years ginning up all sorts of intricate features that only they know how to maintain.

As a federal sales guy, I’m telling you, please keep our hands out of the sustainment cookie jar. Letting us play in sustainment is a recipe for feature bloat — costing tons of money and increasing vendor lock-in, with minimal mission benefit. Instead, we have to come up with a long-term government workforce plan that enables federal employees to take on sustainment operations.

Move towards a true civil service. There’s really not that much difference between federal and private sector hiring. When the feds want to hire someone, they put out an ad, take applications, conduct interviews and engage in negotiations. It just takes longer than the private sector (way longer). This type of need-driven, ad hoc hiring process may work for the private sector. But it’s not right for the unique demands of federal service.

Instead, I would love to see a federal civilian service structured a bit more like the military. I’m not saying that feds need to wear uniforms and do pushups. It’s just that the military does a fantastic job of long-term personnel planning, recruiting, continuous training, retention and advancement. And by organizing around areas of expertise and specific occupational codes, the military has an excellent framework for tackling long-term workforce challenges.

Before you scoff at my suggestion to bring this level of structure to the federal civilian workforce, remember that there are existing models. There’s the intelligence community, and the highly structured federal law enforcement agencies. HHS and NOAA both maintain their own uniformed services. And we have an amazing corps of air traffic controllers who are whip smart, disciplined and train relentlessly. These groups all provide hints at a model that could be applied to solve government-wide workforce development and planning challenges.

One more thing.

I haven’t painted a particularly rosy picture here. But there’s actually tons of exciting stuff going on in the federal acquisitions community. HHS Buyers Club. DoD Better Buying Power. Adventures in agile acquisition. Fun times in a field not exactly known for being a barrel of laughs.

But here’s the rub. This is all being driven by government. Government is totally out innovating industry here. In the contracting community, we know that acquisitions is a hot mess. But we’re not contributing ideas — or air cover — to those federal partners brave enough to step up and make a difference.

Let’s change that. Transforming federal acquisitions may up end our business models. We may all wind up a bit leaner in the end. But we owe it to our federal partners to help them figure out an acquisitions model that best prepares our nation to face tomorrow’s challenges. Our government will be stronger. And so will we.

About Spence Witten

Spence has somehow survived ten years at start-ups and small businesses without suffering a (major) nervous breakdown. As Lunarline's Director of Federal Sales, Spence actually loves working on proposals. If there were any doubt, this is proof that he is in fact certifiably insane. While his title says "Sales" Lunarline doesn't let him off that easy. We make him do real work, too. Luckily he's a recognized subject matter expert in security policy and loves helping clients navigate their way around tricky security compliance standards. He's also been known to lead a software development initiative or two, though that pretty much always ends poorly for everyone involved. He can be reached at spence.witten@lunarline.com.