Civil Service Has Morphed Into U.S. Inc.

Linda Bilmes, an assistant secretary of Commerce during the Clinton administration, teaches public policy at the Kennedy School of Government at Harvard University. She is co-author of a forthcoming book on Civil Service reform, "The People Factor."

For two decades, Congress has been engaged in a bipartisan effort to shrink the size of government. But today, although fewer people appear on federal payrolls, more people than ever work for the U.S. government.

This seeming paradox has been achieved by hiring private contractors to perform many of the tasks previously performed by federal employees. And although it may not have resulted in a true downsizing of government, it has radically transformed the way public services are provided.

The war in Iraq has turned the spotlight on the shift. Government contractors are working in Iraq as prison interrogators, bomb defusers and armed bodyguards for U.S. officials. They've landed lucrative contracts to rebuild infrastructure and to feed American troops. And some of them have paid dearly for their service.

Paul Johnson, beheaded last month by Islamic militants in Iraq, worked as an engineer for Lockheed Martin. The four Americans whose bodies were mutilated by a mob in Fallouja worked for Blackwater Security, a "strategic support" firm that, among other things, was responsible for protecting U.S. administrator L. Paul Bremer III. More than 100 other contract employees, including about 40 Halliburton employees, have lost their lives while driving trucks, cooking dinner or cleaning up damaged oil wells. This year, the United States will spend $275 billion -- more than 10% of the federal budget -- buying goods and services from private contractors, often through contracts never fully opened to competitive bidding. Much of this work will be poorly managed and inadequately monitored, and yet private contractors have become indispensable to the workings of the government.

Nobody knows exactly how many contractors the government employs. Paul Light of the Brookings Institution estimates that the federal budget funds a "shadow government" of nearly 6 million contractors, about half of them in defense. That means contractors outnumber civil servants and military personnel by a ratio of 2 to 1.

In Iraq, there are at least 50,000 private security contractors working for KBR (a Halliburton subsidiary), Bechtel, Kroll, Blackwater and others. In some cases, U.S. companies have recruited these workers from the ranks of mercenaries in Chile, South Africa and other countries.

Contractors are so integral a part of U.S. government operations that it is hard to imagine federal agencies running without them. They provide support services, like processing claims and running computer systems. And they do more exotic jobs: gathering top-secret intelligence for the CIA, investigating fraud and abuse, building warships and helicopters and launching weather satellites. It was a government contractor who issued student visas to two Sept. 11 hijackers -- and notified a Florida flight school of the issuance six months after they crashed their planes into the World Trade Center.

The privatization juggernaut was launched by Ronald Reagan, who took aim at what he felt was a bloated federal workforce. The mission has been embraced by every subsequent administration and, in 1998, was codified by Congress with the Federal Activities Inventory Reform Act. The law requires government agencies and departments to publish an annual accounting of which tasks under their auspices "are not inherently governmental functions" and could therefore be put out to private bid. President Bush has made implementation of this law a cornerstone of his management agenda.

But perhaps it is time to stop and ask some questions.

First, how much does it matter that contractors are motivated by different incentives than civil servants? Whether they are giant corporations like Bechtel and General Electric or individual security guards who can earn $16,000 a month in Iraq, contractors are driven by making money. It is unrealistic to assume that they will be motivated by the same concern for the public interest as civil servants or soldiers. The current system relies on civil servants to manage contractors and hold them accountable. But -- as has become painfully evident in Iraq -- few civil servants, even in the military, have the training or skills to do this effectively.

Second, does the taxpayer get value for money? One of the main reasons for outsourcing is that the private sector is widely assumed to be more efficient. But in Iraq, much of the $21 billion being spent on reconstruction is going to high-priced foreign contractors rather than low-cost local labor. As Rep. Henry A. Waxman (D-Los Angeles) has pointed out, non-Iraqi contractors charged $25 million to repaint 20 police stations -- a job that the governor of Basra claims could have been done by local firms for $5 million.

Third, where do we draw the line on which jobs are so "mission-critical" that they simply must be done by government employees? In some areas, the risks of losing control may well outweigh budgetary considerations -- as, say, in the interrogation of military prisoners. But the pendulum has swung so far in favor of contracting out that departments typically even hire outside companies to perform audits of other government contractors.

In Iraq, this issue is compounded by contractors' murky legal status. Under the Geneva Convention, they are noncombatants, but many of those working in Iraq carry arms and work as paramilitary security forces, or they are involved in training military security forces. Employees from at least two military contractors (CACI of Arlington, Va., and Titan of San Diego) are being investigated for their possible role in alleged torture at Abu Ghraib prison. The CACI contract has riled the procurement community because it was not even purchased directly by the Pentagon but was part of a larger contract negotiated by the Department of the Interior to provide computer network solutions.

Finally, how should this large and growing army of workers be managed? The rules governing how and what the government buys are designed to ensure fair competition. But more than half of government contracts are awarded without full competition, according to Taxpayers for Common Sense, a nonpartisan budget analyst. Giant contractors have become adept at gaming the system. Once firms win big contracts -- often using low-ball initial cost estimates -- the government becomes so dependent on their services that it's almost impossible to get rid of them.

This trend toward privatization of government is likely to accelerate even more. At the Department of Defense, 50% of civilian military workers will soon be eligible to retire. Many of those retirees, still in their mid-50s, will end up in the "revolving door," working for contractors after their obligatory one-year abstinence from government-related work.

The war in Iraq is proving to be a wake-up call regarding the role of contractors. Last month, the Senate approved amendments to the 2005 defense appropriations bill that would place controls on the Pentagon's use of outside companies. But that's unlikely to be enough.

It is time to stop the hypocrisy of claiming to shrink government while hiring an ever-larger contingent of private contractors. If these employees are performing work crucial to the function of government, then we should integrate them more fully into the government workforce -- with the same responsibilities and benefits as other government employees.

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