So, How Much Money Would Using Military Labor Really Save?
I got asked a question the other day that intrigued me. And as longtime readers probably guessed – I decided to play with some numbers and see where they led.
The particular question was in the context of a military logistics contract. The question was, in effect, “How much money would DoD save by doing that with military labor”?
Obviously, I don’t have the specifics of that contract. But I decided to make a couple of assumptions, then “run the numbers” for a contrived but IMO reasonably representative example to see where the numbers led.
As that example, I chose a warehouse operation – two shifts, with 3 nominal 7-person teams (team lead plus 6 workers each) and a shift lead for each shift, plus a warehouse supervisor and his/her deputy. (Let’s call the teams on each shift “receiving”, “warehousing”, and “shipping”.) I then assumed military and civilian staffing and compared costs.
Since costs vary by region and the logistical contract in question was in the “South”, I assumed the location was in the vicinity of Fort Bragg, NC.
The military staffing for the operation I assumed was as follows:
- OIC: 1 ea O-2, 3 yrs TIS
- NCOIC: 1 ea E-7, 14 yrs TIS
- Shift Supervisors: 2 ea E-6, 9 yrs TIS
- Team Leaders: 6 ea E-5, 5 yrs TIS
- Team Members: 18 ea E-4 (3 yrs TIS), 18 ea E-3 (2 yrs TIS)
I further assumed the OIC, NCOIC, Shift Supervisors, and Team Leaders were all married; that the Team Members were 50/50 split married/single; and that all lived “on the economy” (e.g., received housing allowance and separate rations). This was necessary because – unlike civilian industry – military personnel costs vary depending on whether or not an individual is married.
Military Staffing Costs
Salary data is easy to obtain. However, that’s only part of the actual cost of military employment. In fact, it’s generally only about 2/3 the cost, and sometimes far less.
Here are the components of that cost I used. I probably missed a few:
- Salary: obtained from DFAS for the above grades with TIS indicated.
- Housing allowance: obtained from 2013 Housing Allowance Tables for the Fort Bragg, NC, area.
- Rations allowance: obtained from DFAS.
- Retirement Fund Contribution – for this, I used 15% of salary. This was a Scientific Wild-Ass Guess (SWAG). It’s more than civilian employee planning figures for DoD – those are around 10% of salary, if I recall correctly – but military pensions are more generous percentage-wise and start much earlier.
- FICA Taxes (Employer Share – and no, DoD ISN’T exempt from paying this to the SSA) – 7.65% of salary.
- Medical Care Cost Subsidy – for this, I used 11.22% of salary, That’s based on the estimate of $49.4B total DoD medical costs for 2014; the assumption that 1/3 of medical care costs goes for routine care for military personnel and dependents; and a total personnel budget of $147B.
- Dental Costs – this is a Wild-Ass-Guess (WAG), 1% of salary.
- MWR/Quality of Life Programs – also a WAG, 2% of salary.
- Commissary Subsidy – subsidy is currently about $1.4B annually, equal to approximately 1% of DoD personnel costs, so I’m assuming 1% of salary.
- Other: 2.15% – this is a pure WAG to cover stuff I overlooked and make the numbers come out even.
Other than housing and rations, the other benefits total just over 40% of salary. I thus used 40% as an aggregate percentage for the cost of benefits (over and above housing and rations allowances) for military personnel. Housing and rations allowances I included explicitly below.
Doing the math, here’s what I came up with, Sorry for the somewhat smallish print and image; the table’s too large to fit width-wise using the normal font.
Total Annual Cost: $2,557,006
That’s an estimate for the full personnel cost of running the warehouse operation using military staffing.
Contractor Staffing Costs
So, how does that compare with staffing the same facility with civilian labor? You’re probably going to be surprised.
Case 1: All Full-Time Labor
Here’s what I used as contractor costs – the contractor would charge the government the “Unit Cost” line for each individual in that category. I used a benefits “load” of 1/3 of salary (fairly common, and likely a bit generous; private-sector benefits are in general much less generous than those in the military). And based on limited spot-checking for the Fayetteville, NC, area, at least some of these salaries are rather high – which means the contractor cost would probably be lower than I’ve estimated here:
|
Qty |
Position |
Salary |
Bennies |
Unit Cost |
Line Cost |
Hourly Cost |
|
1 |
Warehouse Mgr |
$90,000 |
$29,700 |
$119,700 |
$119,700 |
$47.80 |
|
1 |
Warehouse Foreman |
$75,000 |
$24,750 |
$99,750 |
$99,750 |
$39.83 |
|
2 |
Shift Lead |
$60,000 |
$19,800 |
$79,800 |
$159,600 |
$31.86 |
|
6 |
Team Lead |
$50,000 |
$16,500 |
$66,500 |
$399,000 |
$26.55 |
|
36 |
Workers |
$37,566 |
$12,397 |
$49,963 |
$1,798,660 |
$23.94 |
Total Annual Cost, Case 1: $2,576,710
Even using these numbers, we save less than 1% by using military labor. And as I’m about to explain, we probably won’t even see that due to (a) lower contractor salaries than used above, and (b) contractor use of part-time labor.
Case 2: Extensive Part-Time Labor
As noted, the figures above assume the contractor uses 100% full-time staff getting full benefits for all positions. Now, let’s see what happens if the contractor staffs the warehouse floor (the “Workers”) with part-timers at $18/hour and working part-time (an average of 24hrs/week) vice full-timers. For part-timers, the benefit load drops to a WAG of about 10% (employer pays FICA plus state unemployment insurance, but no medical/retirement/other). Now the contractor cost becomes:
|
Qty |
Position |
Salary |
Benefits (33%) |
Unit Cost |
Line Cost |
Hourly Cost |
|
1 |
Warehouse Mgr |
$90,000 |
$29,700 |
$119,700 |
$119,700 |
$47.80 |
|
1 |
Warehouse Foreman |
$75,000 |
$24,750 |
$99,750 |
$99,750 |
$39.83 |
|
2 |
Shift Lead |
$60,000 |
$19,800 |
$79,800 |
$159,600 |
$31.86 |
|
6 |
Team Lead |
$50,000 |
$16,500 |
$66,500 |
$399,000 |
$26.55 |
|
60 |
Workers |
$22,540 |
$2,254 |
$24,794 |
$1,487,614 |
$19.80 |
With a total annual cost of $2,265,664, Case 2 represents a savings to Uncle Sam of a bit over 11% vice using military labor.
Bottom line: military labor ain’t exactly all that cheap any more, folks.
Category: Defense cuts, Economy, Military issues
SGT E – yes, that is kind of what I am thinking. A SP4 type may have cost some training, but we recoup some of that training throughout his career. He didn’t just get $100K of
training and go dormant for two years afterward… some of what he did counts as ROI, right? Kind of like depreciating machinery, to my mind: we spent $100K getting him trained and tuned up, in exchange for which maybe we got $10K worth over his pay the first year and $20K the second year – now the net is that his training is a $70K cost, not $100K. May not be 100% valid but it makes some sense to me. (Too, I don’t have Hondo’s finely tuned analytical mind….)
Ex-PH2: My whole point here was to show that military labor isn’t exactly cheap any more. The numbers back that up.
That should be no surprise. Qualified professional labor never is particularly cheap.
I understand the “military costs are high” argument. And to a point, they’re at least arguably correct. Military pay/benefits/retirement do indeed add up.
They add up because a well-trained, professional military equipped with qualitatively superior weaponry that can consistently fight outnumbered 3-to-1 or more and win is an expensive proposition, particularly for a nation with worldwide interests. Ain’t no way to avoid that. Quality, realistic training requires mucho dinero – for ranges, supplies, transportation, fuel, ammo, whatever. Ditto attracting and retaining a quality, all-volunteer force. And cutting-edge equipment is exceptionally pricey too.
The alternatives that cost less are (1) a substantially smaller military; (2) a military that is less well-trained, (3) a military that is less-well-equipped; (4) a military that is paid far less, or (5) some combination of 1 through 4. And IMO any of these alternatives will very likely result in substantially more casualties (in terms of US WIA and KIA) during future conflicts.
What the US taxpayer wants is a military that costs less but is the same size and quality as it has today. Sorry, but that ain’t gonna happen – the Leprechaun just left with his pot o’gold, and the Genie isn’t in the mood to give out wishes today.
There are a few alternatives that might work to lower costs without breaking things beyond repair, but all are painful. Time permitting, I might have an article or two with a modest proposal or three regarding the subject soon.
And every one of those military people is, in extreme, a rifleman (or a sandbag…), and deployable. Try that with (non-veteran) civilians…..
PavePusher: if they’re DoD civilian employees and want to remain employed, in general they’re deployable. They indeed have an “out” card, but playing can have some significant consequences.
Those consequences can include something called “voluntary unemployment”. And in many states, voluntarily quitting a civilian job disqualifies you from receiving unemployment compensation.
Not every job is a good candidate for being filled by a civilian government employee or a contractor. In particular, if the job has a reasonable probability of being deployed to a combat zone – IMO it should be filled by someone in uniform.
However, CIF at Fort Bragg ain’t going anywhere unless and until Fort Bragg closes down. Ditto most of its warehouse and logistical operations, range control, facilities maintenance, and other similar functions. They are tied to the base, not to any unit there.
Such positions can easily be filled with civilian or contractor employees without loss of effectiveness. And in some cases, it’s probably more efficient to do that.
Besides, just how good an infantry soldier will someone be if they’ve been working in a warehouse for a year or more?
I think we’ve gone too far in “civilianizing” some functions, particularly overseas and especially in combat zones. But some jobs in CONUS can indeed be more effectively filled by a civilian or contractor employee than by someone in uniform who’s been trained to operate a weapons system. And if that job is not going anywhere unless and until the base closes, maybe it should be filled by a civilian or contractor employee.
@34 – Can’t forget Northrop-Grumman in this lineup. Their interesting contribution that is still very active is the B-2, as they’re upgrading it even now.
In line with this thread is a matter of the cost of those billion dollar bombers. Had the number initially negotiated been built the cost per would have been significantly less as the R&D costs were tremendous.
IFCSguy: absolutely correct about the B2. As I recall, the original unit cost was around $400M each when the original quantity projected to be purchased was 132. The final unit cost was just above $2B each – with 21 purchased.
If I’ve done the math right, that means the R&D/setup costs for the B2 were somewhere north of $30B. Spread that over 21 aircraft vice 132, and you’ve got one helluva expensive bird.
Unions. Don’t forget to factor in the unions. They hurt the bottom line. They hurt deadlines. They hurt accountability. ETC, ETC.
And that, Hondo, is what I was talking about: cost overruns with the B2 are the same cost overruns that freaked people out in the 1970s after Hyman Rickover spent so much time ramming the nuclear Navy down the throats of Congress and everyone else.
Parts of those hearings (ASFC)were broadcast on TV. It was when I still had a portable black & white TV, before cable was common and cheaper than a phone. I think ABC did an expose on it or something, and I do remember a video clip of ADM Rickover stumbling and nearly taking a header through an open submarine hatch. He was 80 when he was told to retire. And he didn’t care about the cost, all he cared about was making the nuke power plant work with zero accidents.
Ex-PH2: actually, it was Rickover’s allies in Congress who rammed Rickover – and his reactor programs – down the Navy’s throat. Without powerful allies in Congress, Rickover would have been gone in the late 1950s or early 1960s when he hit max years in grade and commissioned service as an O6 after being a 2x nonselect for RADM. The only reason the man made RADM was the fact that Congress essentially told DoD and the Navy, “If you don’t want us to change the way you select Admirals, you will make the man an Admiral and let him stay – with duty running your Navy reactor program.” That condition persisted until Rickover got so outrageously out of control that he lost some of his backing in Congress. He then ran afoul of SecNav Lehman and got canned, with no one in Congress willing to go to the mat to save him.
Rickover was IMO what the Navy’s early nuclear programs needed. But by probably 1970 – and certainly by 1975 -IMO it was well past time for him to be gone.
Good stuff Hondo. Though for a while there it was an Ex, VoV, Hondo conversation and the rest of us were just flies on the wall. lol
someone touched on it briefly, but are you going to look at costs for Contractors on deployment vs Soldiers on deployment?
I vaguely recall that in Iraq in ’05/06 timeframe there were roughly as many contractors there as green suiters. I think a cost analysis of that would be interesting to see.
I concur with the “civilinization” issue. That was mostly on Rumsfeld who wanted to run DoD like a business and switch jobs that a “civilian” could do out of green suiter hands. Luckily he wasn’t around long enough to see full his “dream” of that.
Hondo, there wasn’t a whole lot of difference between Rickover and his ‘allies’.
But that aside, if you think anyone in WDC isn’t thinking about dumping combat-ready troops for mercs, with the idea that it would be ‘cheaper’ — well, if I can cook it up for a story, someone else is probably already suggesting it, a la Rummy. (See #60 for ref.)
Something I have a problem letting go of on this thread is the implication that the B-2 was badly over budget. Well, that’s not a good way of my putting it because it was way over budget, but what I want to emphasize is that what was developed within its R&D cost was something that our government wanted, at almost all costs. When such focus is placed on a cutting edge technology, invariably cost and schedule becomes secondary. I’ve got decades behind me working for the company that produced this wondrous creation, and a predecessor company, although all of my feeling towards the outfit are not positive, some of their creations stand out amid the many items produced by their many competitors and deserve credit. The B-2 stands out as the premier stealth bomber in the world, projected to have as long a life as the B-52 and as Jonn, acknowledged the R&D cost was not spread out over the original production run. Had it been it wouldn’t have been hard to swallow. The YF-23, two of which were built and are reported to have out performed their competing YF-22’s, but lost the competition anyway. Now we have them working up to an unmanned system landing on aircraft carriers, the X-47B, and it just makes me shake my head in wonder as to how that big thing can land on a postage stamp bobbing in the waves.
Over cost and late delivery has been the theme in recent years. Look at the SBIRS and the costs it has created. Our government wants it bad enough to go through two Nunn-McCurdy breeches and still press on with many billions spent and more committed. Some things are just worth paying for.
Eric: contractors in theater? No. Don’t have good data on that, unfortunately. Anecdotal evidence, however, leads me to believe it’s not an economic decision.
I also wouldn’t blame that one on Rumsfeld. The big push for “contracting out” functions performed by government personnel (in or out of uniform) started in the Reagan administration. By the late 1980s, it was in full swing – and resulted in a HUGE amount of civilian expertise going out the door, particularly in the engineering and procurement/acquisition sectors. IMO we’re still paying for that.
The recent (2001-present) push for large numbers of contractors in-theater I attribute to politics. Bluntly: from my perspective, the American public cares a lot about troops coming home in body bags. They don’t care anywhere near as much about government civilians coming home in body bags – and they could in general care less if contractor personnel come back in a box. The decision to allow massive amounts of contractor support was thus the one of “least political resistance”. IMO, it was truly wrong.
Were I running things, there would be few DoD civilians in combat zones – and practically zero contractors. We’d use DoD civilians only where the military (a) did not have the requisite skills and (b) could not rapidly develop the requisite skills. We’re generally talking linguists and/or some of the intel specialties. The only contractors would be those very few manufacturer tech reps for new systems we absolutely could not live without – and most if not all of them would be in safe rear areas that are not true combat zones, like Kuwait/Bahrain/Qatar/UAE.
Call me old-fashioned, but to me “combat zone” implies uniformed personnel – plain and simple.
Regarding civilian labor for the current example – check back here tomorrow AM. (smile)
Sorry Hondo, that was you that acknowledged the B-2 budget deal, not Jonn, and I bobbled it.
IFCSguy: de nada, fella. My numbers were a bit off, anyway.
The original Northrop cost projection for the B2 was $480M ea based on a purchase of 132 built (I was remembering $400M ea). That means the R&D and setup costs were lower than I calculated – still in the $30B+ range, but far closer to $30B than I calculated (I was coming up with numbers approaching $40B for the R&D and setup costs).
At around $500M ea, the B2 was probably worth it. Not sure it is at well over $2B each, especially given that we now only have a few of them (20 left after 1 crashed).
People who haven’t worked in military R&D/acquisition (or studied it closely) really have no idea how damn expensive it is to do the R&D/testing necessary to develop cutting-edge military gear. If you don’t buy large quantities, that huge R&D/testing cost (and, sometimes, a huge tooling and setup cost as well) raises the unit price of items produced into the stratosphere.
We seem to be doing the same thing with the F22 and F35, too – although the F35 appears to have been a “dog” from nearly day one due to questionable design choices early on. IMO both are simply “good ideas” that fall into the “nice but unaffordable” category.