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Appendix G:
Contractors Are Not Replacing
Departing Federal Workers

Some observers of the Administration's downsizing initiative have concluded that because the federal workforce is decreasing, agencies must be replacing lost employees with contract workers. Careful assessment of trends in federal service contracting shows that this is not generally the case. Governmentwide, there has been no statistically significant increase in real dollars spent on service contracts over the past three years. Moreover, between fiscal years (FYs) 1993 and 1995, the majority of large agencies with significant service contract spending decreased both their number of employees and dollars spent on service contracts. Several federal policies affect the use of contractors in providing services to the government:

Public Law 103-226, the Federal Workforce Restructuring Act of 1994, states in sec. 5(g): "The President shall take appropriate action to ensure that there is no increase in the procurement of service contracts by reason of the enactment of this Act, except in cases in which a cost comparison demonstrates such contracts would be to the financial advantage of the Federal Government."
Office of Management and Budget (OMB) Policy Letter 92-1, dated September 23, 1992, prohibits federal agencies from contracting out "inherently governmental functions."
OMB Circular A-76 defines various service functions and encourages contracting out these functions, but only if they can be done more cost effectively than inside the government.

To determine if contractors were replacing departing federal workers, we compared the trends in personnel reductions and federal spending on service contracts. We measured the change in staffing in terms of full-time equivalent (FTE) employees at each major agency between FYs 1993 and 1995. We measured the change in spending on service contracts by comparing the dollars spent on these contracts by each major federal agency between FYs 1993 and 1995. We deflated the service contract dollars to account for inflation.

The overall dollars spent on federal service contracts, when adjusted for inflation, have been basically flat for the past three years. In FY 1993, the federal government spent $106.1 billion on service contracts; in FY 1995, it spent $106.5 billion a change of less than one-tenth of a percent. However, not all service contracts are for services that federal employees might perform. For example, the federal government rarely performs its own architectural or engineering services. Therefore, we identified those functions that might be performed by either a federal employee or a contractor. These commercial-type services we refer to as "A-76-type" services (see the technical note for details). The federal government's spending for A-76-type services through service contracts totaled $29.4 billion in FY 1993 and decreased to $28.9 billion in FY 1995 a drop of 1.6 percent in inflation-adjusted terms.

We then broke down the overall trends by agency to see the agency-by-agency patterns. We found that 13 of the 21 largest agencies with significant service contract spending decreased both the number of employees and the dollars spent on A-76-type service contracts between FYs 1993 and 1995 (see Table G-1). At the remaining eight agencies, service contracting increased, but the number of employees was decreased. The service contracting increases at seven of the eight agencies were unrelated to agency personnel cuts; the eighth agency's increase reflected a decision to contract out certain service functions.

The Agency for International Development shifted funds away from direct grants to foreign governments into contracts that provide the same assistance. This was unrelated to staffing reductions.
The Army Corps of Engineers' increase in service contracts reflects new assigned responsibilities logistics pre-positions and base closures and the decision to use contracts rather than hire new federal employees to perform these functions.
The Department of Commerce increased contract spending on modernization efforts at the National Weather Service.
The Department of Energy increased contracts as a result of policy decisions to expand its hazardous waste cleanup efforts.
The Department of Justice contracting increase is proportional with its general budget increase.
Increases in the Office of Personnel Management's service contracting represent training funds passed through from other agencies; the department now contracts for training on behalf of these agencies and no longer delivers training directly.
The Tennessee Valley Authority increased contract spending because of one-time costs related to the start-up of the Watts Bar Nuclear Plant.

The one agency that increased contracting to substitute for former federal employees is the Department of Veterans Affairs (VA), which made a policy decision to outsource some service functions, such as janitorial services. It also closed some supply depots and shifted to the use of prime vendor contracts (these deliver supplies directly to VA hospitals instead of to centrally located warehouses).

Table G-1: Comparison of Personnel Reduction
and Service Contract Level

	Jan. 1993 - Sept. 1995 FTE Employees		FYs 1993-95 A-76-Type Services Contract Levels
	Numeric Change	Percentage Change	Dollar Change (in thousands)	Percentage Change
Reductions in FTEs and Contract Dollars
Agriculture	-11,800	-10.2	-38,912	-13.6
Defense	-109,600	-11.8	-1,009,787	-5.6
Education	-200	-4.0	-29,496	-15.6
Environmental Protection Agency	-100	-5.9	-34,951	-5.3
General Services Administration	-3,600	-17.5	-39,515	-9.0
Health & Human Services/Social Security Administration	-6,500	-5.0	-856	-0.1
Housing & Urban Development	-1,500	-11.0	-20,011	-24.1
Interior	-7,300	-9.2	-8,032	-4.1
Labor	-1,500	-8.2	-8,525	-6.6
National Aeronautics and Space Administration	-3,300	-12.8	-55,066	-2.0
State	-2,100	-8.1	-328	-0.1
Transportation	-7,100	-10.1	-175,683	-15.7
Treasury	-8,600	-5.2	-2,533	-0.8

Reductions in FTEs and Increases in Contract Dollars
Agency for International Development	-800	-18.2	164,616	17.5
Army Corps of Engineers	-1,500	-5.1	216,514	36.0
Commerce	-1,400	-3.8	36,966	31.2
Energy	-900	-4.4	128,845	12.0
Justice	-1,500	-1.5	176,460	58.5
Office Of Personnel Management	-2,000	-32.3	3,841	8.7
Tennessee Valley Authority	-2,400	-12.6	55,337	19.7
Veterans Affairs	-3,900	-1.7	94,644	25.2
All Other Agencies	-6,400	-7.4	74,948	33.1
Total	-185,000*	-8.6	-471,578	-1.6

*Total not exact due to rounding.

Technical Note:

In calculating its figures, the National Performance Review identified certain categories of service contracts as including commercial or industrial functions that might be performed by either federal employees or contractor employees. We refer to these as commercial-type or "A-76-type" services; these include such activities as maintenance; repair and rebuilding of equipment; technical representation services; medical services; professional, administrative, and management support services; training services; and housekeeping services. They do not include such activities as construction or architect and engineering services, which the government almost always contracts out.

The personnel data in Table G-1 are from Executive Office of the President, "Analytical Perspectives,"Budget of the United States, Fiscal Year 1997 (Washington, DC: Government Printing Office), p. 180. The procurement data are from the General Services Administration's Federal Procurement Data System, Form SF-279, for FYs 1993 and 1995.

Appendix G: Contractors Are Not Replacing Departing Federal Workers

Table G-1: Comparison of Personnel Reduction and Service Contract Level

Appendix G:
Contractors Are Not Replacing
Departing Federal Workers

Table G-1: Comparison of Personnel Reduction
and Service Contract Level