Do private contractors save taxpayers money? The answer is something of a toss-up. Some analysts argue that contractors' wages are so much higher than military wages for similar jobs that contracting does not save money and might actually be more expensive than using military personnel.
“In 2007, private security guards working for companies such as Blackwater and DynCorp were earning up to $1,222 a day,” wrote Nobel Prize-winning economist Joseph Stiglitz, a professor at Columbia University, and Linda Bilmes, a Harvard University lecturer on budget and public administration. “By contrast, an Army sergeant was earning $140 to $190 a day in pay and benefits.”
Such comparisons are flawed, however, according to the nonpartisan Congressional Budget Office (CBO), which provides economic analysis to Congress. The $1,222 a day that Bilmes and Stiglitz cite as a salary is actually a salary plus additional money that goes not to the individual workers but to the company they work for, to cover costs such as overhead, the CBO said.
Hiring a private contractor costs roughly the same as using a comparable military unit, the CBO found. And over the long run, using contractors might actually be cheaper because military units continue to cost the government money during peacetime, while contractors do not, the budget analysts said.
Hiring private security companies to guard embassies in Iraq costs the State Department less in four out of five cases reviewed by the Government Accountability Office (GAO), Congress' nonpartisan auditing agency, than it would have cost to use State Department personnel. The cost difference stems mainly from the fact that State Department guards would serve in Iraq for only a year at a time before rotating to posts in the United States. That means the government would have to hire additional guards to cover the Iraq duties while simultaneously paying the State Department personnel for their stateside posts. By contrast, the government does not have to pay any individual contractors unless they're actually on the job.
GAO said it was unable to come up with a similar cost comparison for Department of Defense (DOD) contractors because the DOD couldn't provide enough information about its own costs. DOD said it didn't have information readily available about the number and rank of military personnel that would be required to fulfill a security contractor's duties or about how much it would cost to train service members to do the jobs.
Military service members earn far less than many private security guards, according to scholars Joseph Stiglitz and Linda Bilmes. (Corel)
The fact that private contractors are temporary employees whom the government does not have to retain or train certainly makes them a lower-cost option, said Doug Brooks, president of the International Stability Operations Association, a security-contractor industry group. “As soon as the job's over, you stop paying them,” he said. Yet the government continues to pay for service members even after they leave the military, providing education benefits through the GI Bill and veterans' health care, for example, he said.
While some analysts say private contractors are cheaper than government or military personnel, however, others say they can wind up costing more. “Warfare is usually characterized by secrecy, heavy time constraints and the imperative of victory,” so the government spends little effort on rigorous competitive bidding or cost oversight of contractors, wrote independent military analyst David Isenberg. Between 1998 and 2003, for example, only 40 percent of government contracts were awarded through competitive bidding, and that number has risen only marginally more recently, Isenberg said.
Furthermore, more than half of the contracts aren't monitored to assure that companies fulfill their contractual obligations, he said. “Thus, the market for private security services is only partially competitive,” and in some cases it's a near monopoly — hardly the recipe for cost efficiency, Isenberg wrote.
— Marcia Clemmitt