Public Administration Review, December 2011
Headline: Federalist No. 70: Where Does the Public Service Begin and End?
Byline: Janine Wedel

Without revolution, public debate, or even much public awareness, a giant workforce has invaded Washington, D.C.—one that can undermine the public and national interest from the inside. This workforce consists of government contractors, specifically those who perform “inherently governmental” functions that the government deems so integral to its work that only federal employees should carry them out.

Today, many federal government functions are conducted, and many public priorities and decisions are driven, by private companies and players instead of government agencies and officials who are duty bound to answer to citizens and sworn to uphold the national interest.

James Madison lays out a forceful case for the separation and distribution of government powers. He cautions against “a tyrannical concentration of all the powers of government in the same hands” and outlines the importance of maintaining boundaries among the divisions of government. I argue that the considerable contracting out of government functions is counter to the vision espoused by these statesmen. Such contracting out potentially erodes the government’s ability to operate in the public and national interest. It also creates the conditions for the intertwining of state and private power and the concentration of power in just a few hands—about which Madison warned.

The Indispensable Hand

Once, government contractors primarily sold military parts, prepared food, or printed government reports. Today, contractors routinely perform “inherently governmental” functions—activities that involve “the exercise of sovereign government authority or the establishment of procedures and processes related to the oversight of monetary transactions or entitlements”

Government contractors are involved in many, if not all, of these arenas of government work. Consider, for instance, that contractors perform the following tasks:

• Run intelligence operations: Contractors from private security companies have been hired to help track and kill suspected militants in Afghanistan and Pakistan.

· Manage—and more—federal taxpayer monies doled out under the stimulus plans and bailouts:

• Control crucial databases: In a mega‐contract awarded by the DHS in 2004, Accenture LLP was granted up to $10 billion to supervise and enlarge a mammoth U.S. government project to track citizens of foreign countries as they enter and exit the United States.

• Choose other contractors: The Pentagon has employed contractors to counsel it on selecting other contractors.

• Execute military and occupying operations: U.S. efforts in Afghanistan and Iraq illustrate this reliance. As of September 2009, U.S.‐paid contractors far outnumbered U.S. military personnel in Afghanistan, composing nearly two‐thirds of the combined contractor and military personnel workforce (approximately 104,000 Defense Department contractors compared with 64,000 uniformed personnel). In Iraq, contractors made up nearly half of the combined contractor and military personnel workforce (roughly 114,000 Defense Department contractors compared with 130,000 uniformed personnel.

In short, the outsourcing of many inherently governmental functions is now routine. The government is utterly dependent on private contractors to carry out many such functions.

Yet contractors’ imperatives are not necessarily the same as the government’s imperatives. Contractor companies are responsible for making a profit for their shareholders; government is supposedly answerable to the public in a democracy.

Amid this environment, which is complicated by mixed motives, contractors are positioned to influence policy to their liking on even the most sensitive, mission‐critical government functions, such as fighting wars, guarding against terrorism, and shaping economic policy. Government investigators looking into intelligence, defense, homeland security, energy, and other arenas have raised questions about who drives policy—government or contractors—and whether government has the information, expertise, institutional memory, and personnel to manage contractors—or is it the other way around?

The result of all of this is that the nation’s safety, security, and sovereignty may be jeopardized, along with the very core of democratic society—citizens’ ability to hold their government accountable and have a say in public decisions.

Enabling Big Government

How did this state of affairs come to be?

Ironically, the perennial American predilection to rail against “big government” is partly to blame for the creation of still bigger government—the “shadow government” of companies, consulting firms, nonprofits, think tanks, and other nongovernmental entities that contract with the government to do so much of its work. This is government for sure, but often of a less visible and accountable kind.

The necessity of making government look small—or at least contained—has fueled the rise of this shadow government. In an ostensible effort to limit government, caps have been put on how many civil servants government can hire. But citizens still expect government to supply all manner of services—from Medicare and Social Security to interstate highways to national defense. To avoid this conundrum, both Democratic and Republican administrations over the years have been busily enlisting more and more contractors (who, in turn, often hire subcontractors) to do the work of government. Because they are not counted as part of the federal workforce, it can appear as if the size of government is being kept in check. Like the Potemkin village of Russia, constructed to make the ruler or the foreigner think that things are rosy, the public is led to believe they have something they do not.

Where federal employees once executed most government work, today, upwards of three‐quarters of the work of federal government, measured in terms of jobs, is contracted out.

The shadow government encompasses all of the entities that swell the ranks of contractors and entire bastions of outsourcing—neighborhoods whose high‐rise office buildings house an army of contractors and “Beltway Bandits.” Largely out of sight except to Washington‐area dwellers, contractors and the companies they work for do not appear in government phone books. They are less likely to be dragged before congressional committees for hostile questioning. They function with less visibility and scrutiny on a regular basis than government employees would face. Most important, they are not counted as government employees, and so the fiction of limited government can be upheld, while the reality is an expanding sprawl of entities that are the government in practice.

The Elephant in the Room

In the DHS—the mega‐bureaucracy established in 2003 through the merger of 180,000 employees and 22 agencies, the creation of which entailed the largest reorganization of the federal government in more than half a century—contractors are more numerous than federal employees. The DHS estimates that it employs 188,000 workers, compared with 200,000 contractors.

In some arenas of government, contractors virtually are the government. The DHS, which includes the Customs Service, Coast Guard, and Transportation Security Administration, has relied substantially on contractors to fill new security needs and shore up gaps.

Meanwhile, about 70 percent of the budget of the U.S. intelligence community is devoted to contracts, according to the Office of the Director of National Intelligence. The director both heads the U.S. intelligence community and serves as the main advisor to the president on national security matters.

Contractors are plentiful in other arenas of government that directly affect national and homeland security, not only the departments of defense and homeland security. For instance, nearly 90 percent of the budgets of the Department of Energy and NASA go to contracts.

Information technology (IT), which touches practically every area of government operations, is largely contracted out. Upwards of three‐quarters of governmental IT is estimated to have been outsourced even before the major Iraq War–related push to contract out.

Swiss‐Cheese Government

In theory, contracts and contractors are overseen by government employees who would guard against abuse. But that has become less and less true as the capacity of government oversight has diminished—a lessening that seems to flow directly from the need to maintain the façade of small government. A look at trend lines is illuminating. The number of civil servants who potentially could oversee contractors fell during the Clinton administration and continued to drop during the George W. Bush administration. In 2002, each federal acquisition official oversaw the disbursement of an average of $3.5 million in service contracts. In 2006, the average workload expanded to $7 million and, in 2008, to $10.6 million, while also demanding of the workforce increasingly complex contracting skills.

The result is that government sometimes lacks the information it needs to monitor the entities that work for it. A top GAO official reported that in many cases, government decision makers scarcely supervise the companies on their payrolls. As a result, she observed, they are unable to answer simple questions about what the firms are doing, whether they have performed well or not, and whether their performance has been cost‐effective.

The issue of oversight is further complicated by the multiple layers of contracting and subcontracting that are endemic to the contracting system. Contractors working on large projects typically farm out work to multiple subcontractors. While the practice makes sense in terms of assembling a variety of competencies in one project, it distances government monitoring from the work being done and the ability to assess it.

When the number of civil servants available to supervise government contracts and contractors proportionately falls, thus decreasing the government’s oversight capacity, and when crucial governmental functions are outsourced, government begins to resemble Swiss cheese—full of holes. Contractors are plugging these holes. As a consequence, contractors have become the home for much information, legitimacy, expertise, institutional memory, and leadership that once resided in government.

Numerous instances are on record in which contractors vastly outnumber government officials in “government” meetings—or in which officials are altogether absent. For instance, GAO official Katherine Schinasi described a high‐level meeting that she attended at a military command. Because she did not know any of the participants, she asked everyone around the table who employed them. “There were several people who worked for the military command, but the majority of people sitting at the table worked for contractors,” she said.

In sum, government officials who are directing and implementing crucial policy directives are not always in the information loop. They are often reliant on what the contractors report and recommend, especially when a sole contractor carries out a given program or project (as is often the case). Even when government officials approve projects and decisions, they may be merely rubber stamping the work of contractors. And when those officials receive incomplete or skewed information (or when contractors are formulating and driving policy, leaving bureaucrats merely to sign on the dotted line), the public and national interest can be compromised.

Concentrating Powers

Swiss‐cheese government lends itself to the kind of concentration of powers that Madison warned about. Over the past decade and a half, new institutional forms of governing have gathered force as contractors perform inherently governmental functions beyond the capacity of government to manage them.

Incentive structures that encourage government executives (notably intelligence and military professionals) to move to the private sector, as well as new contracting practices and a limited number of government contracting firms, are among the factors that facilitate the intertwining of state and private power. With regard to the former, not only are salaries and perks for comparable jobs typically greater in the private sector, but often, so is prestige. Many government executives, retirees, and other employees follow the money by moving to the private sector. But the landing spots that supply the big bucks—and with them, influence and stature—are often those held by former government executives.

When government contractors hire former directors of intelligence‐ and defense‐related government agencies, they are banking on “coincidences” of interest between their hires and their hires’ former (government) employers. (A coincidence of interest occurs when a player crafts an array of overlapping roles across organizations to serve his own agenda—or that of his network—above that of those of the organizations for which he works.) The result of such coincidences in the intelligence arena is that “the Intelligence Community and the contractors are so tightly intertwined at the leadership level that their interests, practically speaking, are identical.

Also potentially facilitating the fusion of state and private power are changes in contracting practices and the dearth of competition among and consolidation of government contracting firms. Small contracts often have been replaced by bigger, and frequently open‐ended, multiyear, multimillion‐ and even billion‐dollar and potentially much more lucrative contracts with a “limited pool of contractors.” Today, most federal procurement contracts are conferred either without competition or to a limited set of contractors.

The routine outsourcing of government functions, the structures of incentives, and new contracting rules and practices encourage new forms of governing in which state and private power are joined. These forms seem very far afield indeed from Madison’s vision of a nation in which government powers cannot be concentrated.

Reclaiming the Soul of Government

It is not just that government is utterly dependent on private companies to do much of its work. The United States faces an entrenched problem that cannot be fixed simply by insourcing jobs or by hiring more government employees to oversee contractors, as some observers have suggested. A top‐to‐bottom rethinking of how government makes use of contractors is necessary. One particularly important issue that deserves attention is how to rebuild capacity that has been lost with the privatization of information, expertise, and institutional memory. Another set of challenges lies in reforming the contract laws and regulations that have been changed over the past decade and a half—and that have made the contracting system less transparent and accountable and more vulnerable to the influence of private and corporate agendas.

It is not just that government is utterly dependent on private companies to do much of its work…. A top‐to‐bottom rethinking of how government makes use of contractors is necessary. One particularly important issue that deserves attention is how to rebuild capacity that has been lost with the privatization of information, expertise, and institutional memory.

But reclaiming government is not merely a design challenge. Government must take its soul back. While it may be strange to mention “soul” and government in the same breath, linking the quintessentially personal with the quintessentially bureaucratic and impersonal, a government procurement lawyer described the current state of affairs as the “ebbing away of the soul of government.” When an institution is drained of expertise, information, and institutional memory, it not only loses its edge, but also its essence.

[Professor’s Note: This is factual data from the article “Outsourced Government” by June Sekera of Tufts University, September 2017)

A study by the Project on Government Oversight in 2011 showed that the federal government pays contractors at rates 1.83 times greater than federal employees’ total compensation, and more than 2 times the total compensation paid in the private sector for comparable services. Available data indicate that a large swath of federal government operations is handled by corporate contractors whose intrinsic purpose is to maximize profits for shareholders rather than to serve the public interest.

While the people pay the price for contracted-out government, private corporations have profited handsomely from their government contracts. The winners have ranged from the corporations who operate the prison-industrial complex, to corporate water suppliers who replace public systems and raise costs, to the defense contractors and other businesses that run much of the United States’ intelligence services. The majority of some corporations’ income comes from taxpayers. For example, 99 percent of Booz Allen Hamilton’s revenue is from government.]

Questions:

What is meant by “shadow” government and “swiss-cheese government? What explains its increase in recent decades? What do you think Wedel means when she says that “government must take its soul back.”

Use the web reading by Wilson to evaluate the outsourcing of government work. Are there advantages to outsourcing that Wedel overlooks? Explain.