Defense and civilian agencies often fail to consider a range of administrative costs when comparing contractors’ and federal employees’ proposals for work, a problem that can lead to unexpected costs.
As the Defense Department looks to minimize spending, it's often impossible to compare contractors’ costs and in-house overhead expenses, because policies do not include expenses outside the realm of a statement of work. DOD Workforce Cost Realism Assessment.
The problem is that no one knows what to include when comparing contractors’ and federal employees’ expenses. “The challenge for determining an adequate overhead rate starts with the definitional question of what constitutes overhead. There does not exist a universally accepted definition of what costs are subsumed under overhead.
Even so, a single definition that would cover the vast expanse of federal work is suspect.
But when budgets are strained, officials need a data-driven approach, with verifiable results, to make good decisions on allocating resources. Then they can also understand the implications of how they’re spending their funds, including the associated costs.
Officials need to account for costs of oversight and administration, whether the work is being done in-house or by a contractor, and they need to consider the risks of cost growth for each case. Factors to weigh include tax revenues, personnel (such as health care and retirement) and the cost of transitioning the work from one sector to the other.
When laying out the initial statement of work, an agency should clearly describe the performance parameters on which it will assess the federal employees and private company’s proposals for work.
The issue of deciding when to insource work that can be done by either sector has to account for various costs beyond the direct cost of a project or certain work.
“For too many years, we have been embroiled in a continual debate over how to calculate the relative costs of performance.”
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