Booz Allen Hamilton is a private company with 22,600 employees and more than $5 billion in annual revenue. The government of the United States is, obviously, not a private company; it has 2.1 million employees and more than $3 trillion in annual revenue. The CEO of Booz Allen, Horacio Rozanski, makes $3.5 million a year. The CEO of the U.S. government—we call him the president—makes $400,000.
At first glance, there is nothing unusual about this. The rule in America has long been that private-sector firms are free to pay their leaders more than what taxpayers would countenance for government officials.
But here’s the thing: in 2016, Booz Allen got 97 percent of its revenue from the taxpayer, in the form of federal contracts.
Now, perhaps the work Booz Allen does for the government is so rare and valuable that it’s worth awarding it contracts generous enough for its CEO to take home nine times the salary of the leader of the free world. Booz Allen, however, does not produce, say, predator drones, or supercomputers, or other products the government depends on but could never supply on its own.
Instead, the 5,100-plus contracts Booz Allen has with the federal government are for “professional services”—for instance, helping procurement specialists at government agencies decide which new software platforms to buy, and then providing training and technical support for those systems. Much of this is work that the government could, in theory, hire civil servants to do. Indeed, walk into any federal agency and you’re likely to find civil servants and contractors from Booz Allen—or Deloitte, or SAIC, or dozens of other professional services consultancies—working side by side, often doing jobs that are interchangeable or nearly so.
The main difference is that, factoring all expenses—salaries, benefits, and so forth—the contract employee costs the federal government on average nearly twice what the civil servant does, according to a study by the Project on Government Oversight. It’s that difference that allows Booz Allen to pay its executives millions per year.
Why would federal agencies throw money at contractors for work that could be done in-house? Partly it’s a matter of flexibility. Thanks to ungainly civil service regulations, it regularly takes as long as a year to hire (or fire) a government employee. But as Gilad Edelman explains, the main reason is a decades-old unofficial cap imposed by Congress on the number of federal workers.
The 2.1 million civil servants the federal government employs today is the same number (not counting the Postal Service) that it employed in 1966—even though annual GDP and government spending since then have both more than quadrupled. Given the de facto hiring cap, the only way for agencies to meet the obligations demanded of them by congressional statutes is to farm out more and more of the work to private contractors. And so the contracting force continues to grow, along with the cost to taxpayers, with no noticeable improvement in government performance. Indeed, the opposite may be true. Contractors, because of their contingent relationship to the agencies, typically have less emotional investment in the mission of those agencies. It’s probably no coincidence that Edward Snowden was a Booz Allen contractor—or that he was screened for his security clearance by another contractor, USIS.
The obvious solution is for Congress to allow agencies to bring more work in-house by expanding the federal employee head count, reforming civil service rules, and perhaps offering higher pay to employees with special skills who can’t be lured into government service at current pay scales. But there’s no political imperative to do any of that. For Republicans, capping—or, as they are now gearing up to do, cutting—the number of civil servants is a way to send a message to their base that they are serious about reducing government, even if the reality is a government that, when you count the contractors, is just as big and even more costly. For Democrats, accepting an ever-growing contractor workforce is a price they have been willing to pay to keep government going—and politically safer than advocating for more civil servants.
Given this depressing political dynamic, a frontal assault on the problem is unlikely. What’s needed is what the military calls a flanking maneuver: hitting the enemy from another side where it’s weaker. Advocates of better government should call for a simple reform: any company that receives most of its revenue from the federal government and wants to keep getting that money can no longer pay its CEO more than the government pays the president of the United States. Most Americans would probably find this rule sensible. In fact, it’s the kind of idea a political candidate could run on. Like other contractor mandates, it could be enacted by executive order—no need to go through Congress. Contractors could be exempted only if they provided products or services the government truly cannot provide in-house.
With such a rule in place, contractors would be left with a few options, all of which would benefit taxpayers. They could simply comply with the rule and drop their CEO’s salary to $400,000. That would inevitably lead them to lower the salaries of employees lower on the totem pole, saving taxpayers a significant amount of money. Or, contractors could lobby Congress to raise the salaries of the president. That would allow for higher salaries for other government employees (the president’s salary being the ceiling), which would go a long way toward restoring the competitiveness of a career in government. Or, contractors could entirely exit the market. Government agencies, especially in the Pentagon and intelligence community, would face the prospect of a crippling loss of critical workers. These days Congress works only amid crises, and this would be one neither Democrats nor Republicans would want to see last long. The only way out would be to finally allow agencies to hire the number of people who should be working for them anyway.