FTE Costing: DoD Civilian v. Contractor

Michael Wright COL, USA (Ret) Vice President, Wittenberg Weiner Consulting, LLC

How much should an FTE cost? �  Clients equate one hour of GS employment to

one hour of contractor employment

�  Clients think in terms of on-budget costs

�  Clients are unaware of what the government’s overhead costs are.

�  Every hour of productive office labor has hours of

non-mission-focused activities around it.

How much does an FTE cost?

DoD Civilian Contractor

Salary $80,000 $90,000

Total $ $

Calculate Cost of Benefits

DoD Civilian Contractor

Salary $80,000 $90,000

Benefits Sometimes included $++

Total $ $

Benefits (don’t apply to 1099s) �  State unemployment insurance �  Federal unemployment insurance �  Employer taxes (medicare & social) � Holidays and vacation �  401K management, reporting, insurance and

match � Health insurance � Health cafeteria plan

You are easily at a 1.3 or 1.4 wrap rate already before any overhead or G&A!

Off Budget Costs

DoD Civilian Contractor

Salary $80,000 $90,000

Benefits Sometimes included $++

Off budget costs: legal, recruiting, compliance, payroll, real estate, utilities, maintenance, management (how far up should we count management costs?)

“Free” $++

Total $ $

Pension…the long tail

DoD Civilian Contractor

Salary $80,000 $90,000

Benefits Sometimes included $++

Off budget costs: legal, recruiting, compliance, payroll, real estate, utilities, maintenance, management (how far up should we count management costs?)

“Free” $++

Pension (long tail) Sometimes included $0

Total $ $

Professional Advice DoD Civilian

Contractor

Salary $80,000 $90,000

Benefits Sometimes included

$++

Off budget costs: legal, recruiting, compliance, payroll, real estate, utilities, maintenance, management (how far up should we count management costs?)

“Free” $++

Pension (long tail) Sometimes included

$0

Outside counsel (hourly, and therefore expensive for small business)

“Free” $++

Total $ $

Audits: all hours of audit plus bookkeeping billed to overhead �  SBA compliance (audit or financial review) �  Floorcheck audits �  Pre-award audits �  Systems audits �  GSA audits �  Facility Clearance Audits �  ICE audits �  IG investigations �  Labor audits �  Obamacare audits �  Insurance audits �  IRS audits

Idle Time

DoD Civilian Contractor

Salary $80,000 $90,000

Benefits Sometimes included

$++

Off budget costs “Free” $++

Pension (long tail) Sometimes included

$0

Outside counsel “Free” $++

Idle time: “On the beach” costs, frequent severance

$++, but it doesn’t add to the budget

$++

Total $ $

Insurance

DoD Civilian Contractor

Salary $80,000 $90,000

Benefits Sometimes included $++

Off budget costs “Free” $++

Pension (long tail) Sometimes included $0

Outside counsel (hourly, and therefore expensive for small business)

“Free” $++

Idle Time $++, but it doesn’t add to the budget

$++

Insurance “Free” $++

Total $ $

Insurance

� Workers’ Comp � DBA � Liability � Key man � Country insurance/SoS insurance � Renters’ insurance/facility insurance � 401K plan insurance

Transactional Costs DoD Civilian Contractor

Salary $80,000 $90,000

Benefits Sometimes included $++

Off budget costs “Free” $++

Pension (long tail) Sometimes included $0

Outside counsel “Free” $++

Idle Time $++, but it doesn’t add to the budget

$++

Insurance “Free” $++

Transactional costs: meetings, teaming agreements, NDAs, proposal writing, BD, marketing, web site development.

“Free” $++

Total $ $

References �  The only publicly accessible cost figures for government employees pertain to military

manpower, this one is from the Reserve Forces Policy Board (http://rfpb.defense.gov/Portals/67/Documents/RFPB_Cost_Methodology_Final_Report_7Jan13.pdf).

�  This one is from the Pentagon’s CAPE office (http://www.ngaus.org/sites/default/files/CAPE%20FINAL%20ACRCMixReport.pdf).

�  No one has really done the analysis on the civilian side, but CSIS did a report describing how the Pentagon could approach it (http://csis.org/files/publication/110517_Berteau_DoDWorkforceCost_Web.pdf).

�  DTIC’s current manpower cost estimation instruction (http://www.dtic.mil/whs/directives/corres/pdf/704104p.pdf), its analysis of civilian costs is not fully-burdened and is therefore an apples-and-oranges comparison to contractors.

�  OSD Comptroller Instructions on Military Personnel Reimbursement rates (http://comptroller.defense.gov/Portals/45/documents/rates/fy2018/2018_k.pdf)

Lawyers are expensive! �  Contract interpretation & negotiation �  Teaming and subcontract negotiation �  DCAA compliance �  IRS compliance �  Corporate compliance �  EEO compliance �  Labor law compliance �  SOFA compliance �  Sourcing or export compliance �  JV regulations compliance �  Protests

Overhead Labor relating to Contract Employees �  Recruiting �  Interviews �  Onboarding �  Training �  Badging/CAC card, etc. �  Meetings with supervisor �  Describing past performance for proposals �  Employees conducting interviews �  Command picnics, changes of command, etc. if not

authorized

�  Compliance training �  Continuing education (program cost plus time)

Random eventualities: more reasons why overhead is high �  Employee has cancer: overhead � Djiboutians don’t return rental deposits:

overhead �  Employee’s clearance is suspended through

no fault of his own: overhead �  Snow day in DC, government shutdown:

depends �  Severance: overhead �  Recruiting and backfilling an employee who

can’t perform: overhead

More random eventualities �  Need to fix office equipment: overhead �  Regulations change, requiring new employment agreements:

overhead �  Mods to contract require review: overhead �  A solicitation is reopened to clarify the font that is required

—redo graphics: overhead �  Client isn’t renewing option but would like to renew “in a

few weeks”. Keep employee on the beach: overhead. �  Employee wages are garnished, monthly reporting �  Employee games cafeteria plan or doesn’t meet hours

requirements �  “Competition sufficient” solicitation changes to cost pricing

data solicitation �  Client doesn’t pay

What comes out of fee?

�  IFF fees for GSA schedules �  Swag (pens, shirts, etc.) � Pizza dinners, happy hours, morale

building

…these are all unallowable