U.S. Government Poised to Re-Examine Role of Contractors

By Bill Leonard Sep 18, 2009

Many people might find it hard to believe that the size of the federal government’s civilian workforce is the same as it was when John F. Kennedy was president. It’s hard to believe, since the number of government programs, commissions and agencies has grown almost exponentially since 1963.

So who is performing all this extra work for the government?

“Federal contractors” is the answer.

Contractors and independent workers have been an integral part of running the business of the federal government since George Washington took the oath of office as the nation’s first president. The government’s reliance on contractors grew steadily throughout the 20th century—a trend that has continued into the first years of the 21st. During the past 20 years, that reliance has literally exploded as the federal government like many other large corporations engaged in an “outsourcing frenzy.” The number of federal civilian workers shrunk by several hundred thousand during the administrations of Bill Clinton and George W. Bush and, since 2006, has hovered around 1.9 million employees (the same as 1963). The smaller federal workforce, but growing government programs and spending, has translated into increased outsourcing.

“In many ways, hiring and business trends within the federal government reflect the private sector,” said John Palguta, vice president of policy with the Partnership for Public Service in Washington, D.C. “And just like most business trends, the federal government has been looking for ways to be more cost-efficient and leaner by outsourcing its programs and work.”

A Debatable Number

The actual number of federal contractors is hard to pin down exactly, according to Palguta. Every federal agency negotiates and signs contracts, so the process is decentralized. The Office of Federal Procurement Policy does set standards for how contracts must be structured but does not track every agency’s contracting arrangements.

The Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) sets hiring standards and tracks contractors’ affirmative action programs. However, the number of subcontractors, contractors who work outside the United States and contractors that are exempt from the OFCCP rules is substantial. So, any OFCCP statistics wouldn’t be an accurate reflection of the number of businesses that hold contracts with the United States, according to Palguta.

“So the question of how many federal contractors there actually are is a good one and has been up for debate for several years,” he said.

Paul C. Light, a professor of government policy at New York University, has researched the trends of federal contractors and estimates that 10.5 million people work directly on government contracts. He calls these employees the federal government’s “hidden workforce.” If you add in the number of people working on contracts with the U.S. military and Postal Service, then that number moves closer to 15 million, according to Light’s research.

Palguta, however, contends that the size of the contractor workforce is tough to nail down because the number of contracts and the scope of work are constantly shifting.

A Management Challenge

This huge and apparently unwieldy number has grabbed the attention of President Barack Obama, and his administration has begun to launch efforts to get a better feel for how many contractors there are and what types of work they’re performing.

“In many cases, the employees of contractors are working side by side with federal workers, so that you can’t tell at first glance who’s employed by the government and who’s employed by the contractor,” Palguta said. “And in many cases the workers themselves don’t know who employs their co-workers.”

These types of work situations are commonplace in the federal government and can be confusing and frustrating for managers.

“The question of who is responsible for managing these workers can be a tough one to answer and poses some interesting challenges for federal managers and HR professionals,” Palguta said.

The topic of managing federal contract workers was discussed recently in-depth during a meeting on Aug. 18, 2009, of 80 federal HR executives at the Partnership for Public Service’s office. The group had gathered to discuss the future of HR in the federal government and some of the discussion focused on the challenges of dealing with the contract workforce.

“Of course, the issue is a big concern, because how do you manage these workers when you’re not actually their employer, yet, they are performing work essential to the operation and success of your agency or program?” Palguta asked.

A Shift in Policy

The Obama administration has made it clear that a re-examination of federal contractors and how their work is managed and performed is a top priority. Palguta pointed to recent initiatives by the Government Accountability Office and the Office of Management and Budget. The review of contractor policies by these agencies is just getting under way, but the movement is a clear indicator that the White House is serious about changing the way the work of federal contractors is tracked and administered.

“This shift in policy and the approach toward managing contractors was very apparent as soon as President Obama took office,” Palguta said.

A recent rule change that requires employers to verifyfederal contractors’ employment eligibility through E-Verify, the government’s electronic employment verification system, is consistent with the administration’s new policy.

The rule requires federal contracts to include a clause that stipulates that businesses must use E-Verify to determine if all new hires and existing employees performing work directly on the contracts are eligible for employment in the United States.

“The E-Verify requirement comes from an executive order signed by President Bush in 2008, but the Obama administration has decided that it fits in well with what they want to do,” Palguta said. “So, they’ve moved ahead to enforce that rule, which is one of the few rule changes promulgated in the last few months of Bush’s presidency that has stood up.”

The E-Verify requirement will help the government get a better handle or picture of whom federal contractors are hiring to do the work, and that’s a very important step, according to Palguta.


Recent research has revealed that outsourcing government work to contractors is not always the most cost-efficient method to operate. Palguta points to a study of an IRS program to outsource collecting back taxes to private collection agencies. He said the study found that collection agents employed by the IRS were more efficient and did the work for much less than their private-sector counterparts.

After years of outsourcing work and hiring federal contractors, the trend does appear to be reversing—much like recent trends in the private sector have shown. A trends report from the International Association of Outsource Professionals stated that during 2009-2010, the growth of outsourcing will slow as businesses look to cut their costs and consolidate their outsourcing contracts.

Again, said Palguta, the federal government is clearly reflecting the private sector.

“Sometimes the federal government moves quicker on trends than private-sector employers, and sometimes it moves faster,” Palguta said. “And like most business trends what we’re seeing is probably too much of a good thing. The federal government found outsourcing worked and really expanded the number of federal contractors. Now that bubble has burst, and it’s time to pull back in and re-examine how outsourcing works in the federal government.”

Bill Leonard is senior writer forSHRM.


Job Finder

Find an HR Job Near You
Post a Job


Find the Right Vendor for Your HR Needs

SHRM’s HR Vendor Directory contains over 10,000 companies

Search & Connect