Spending Intelligence · Contractor vs. Organic
Contractor vs. Soldier: What DoD Pays for the Same Work Done Two Different Ways
A cleared Army 35F SSG makes $52K base pay. Booz Allen Hamilton bills the government $175–$225/hr for the same work. The DoD has systematically traded organic military capability for contracted services over three decades. The result, in numbers.
Sources: DCAA public reports · GSA Multiple Award Schedule (gsa.gov) · ClearanceJobs.com compensation survey · POGO contractor reports · SIGAR quarterly reports
DoD Service Contract Spending (FY2024)
~$200B
Services portion of the ~$400B contractor total
Typical Markup vs. Organic
2–4×
Government pays 2–4× all-in organic cost for equivalent cleared work
DoD Contractor Workforce
600K–800K
Fluctuating; often undercounted in official headcounts
TS/SCI Clearance Cost
$15–25K
Government adjudication cost per clearance
Section 01
The Scale of the Problem
How Big Is the Contractor Workforce?
DoD employs approximately 750,000 civilian employees and an estimated 600,000–800,000 contractors — a number that fluctuates by budget cycle and deployment tempo and is often undercounted in official headcounts. Since the post-Cold War drawdown of the 1990s, the military has contracted out many functions that were previously performed organically by uniformed service members.
How Much of the Budget Flows to Contractors?
In FY2024, roughly $400B of the $886B DoD budget went to private contractors for goods and services. The goods portion — aircraft, ships, weapons systems — is straightforward procurement. The services portion (intelligence analysis, IT, logistics, training, facilities management, base operations) is where the cost comparison becomes interesting. Services contracts account for approximately $200B annually.
The O&M Accounting Problem
Contractor service costs are often budgeted in Operations and Maintenance (O&M) accounts rather than personnel accounts. This makes direct cost comparison harder: a comparable analysis of "what does it cost to perform this function organically vs. contracted?" requires pulling from two different budget exhibits. This is not accidental — the accounting structure obscures the true cost of contractor dependency.
Section 02
Side-by-Side: The Clearance Tax
Three MOS comparisons. Same clearance level, same years of experience, same function. DoD total cost (organic) vs. contractor billing rate (what the government actually pays).
Methodology: Organic costs use FY2024 DoD pay tables (milpay.army.pentagon.mil) for base pay plus published BAH rates for stated duty locations plus BAS. DoD total cost adds TRICARE actuarial cost (~$24K/yr), retirement accrual (~15% of basic pay), and training/overhead estimates from the DoD “Green Book.” Contractor billing rates from publicly disclosed GSA Multiple Award Schedule rates and DCAA audit findings. Employee salaries from ClearanceJobs.com annual compensation survey.
35F / 35P — All-Source Intelligence Analyst / Cryptologic Linguist
SSG (E-6) · 6 years experience · TS/SCI · Fort Meade area
◆ Organic Military (E-6, Active Duty)
Includes healthcare, retirement accrual, training, and overhead.
◇ Contracted (Booz Allen Hamilton)
Billing rates from publicly disclosed GSA Schedule rates and DCAA audit data.
Bottom line (2.5–3.5×): Government pays 2.5–3.5× the all-in organic cost for the same cleared analyst function.
25B / 17C — IT Specialist / Cyber Operations Specialist
SSG (E-6) · 6 years experience · TS/SCI · Cyber Command / NSA area
◆ Organic Military (E-6, Active Duty)
Includes TRICARE, TSP match, retirement accrual.
◇ Contracted (Leidos / SAIC)
Cyber billing rates carry a significant cleared premium. DCAA-audited rates from public GSA schedules.
Bottom line (1.8–2.5×): Slightly lower ratio than intel due to larger cleared cyber workforce, but government still pays significantly more.
92A / 88M — Automated Logistical Specialist / Motor Transport Operator
SSG (E-6) · 6 years experience · Secret (lower clearance premium) · CONUS installation
◆ Organic Military (E-6, Active Duty)
Lower total cost because logistics MOS typically requires less specialized training pipeline.
◇ Contracted (DRS Technologies / PAE / Vectrus)
Lower billing rate than intel/cyber — no TS/SCI clearance premium. Rates from public LOGCAP and AFCAP vehicle data.
Bottom line (1.1–1.7×): Narrowest gap, but still consistently more expensive than organic. Where LOGCAP historically produced the largest cost overruns.
Section 03
Why DoD Keeps Doing It
Legitimate Reasons
- ▸Surge capacity: Contractors can be scaled up in wartime and drawn down without career commitments. LOGCAP exists because the Army cannot maintain a permanently staffed logistics force large enough for major contingency operations.
- ▸Specialized skills: Some capabilities — certain cyber subdisciplines, rare language skills, niche engineering — genuinely don't exist in uniform at the scale needed.
- ▸Workforce flexibility: Contractors can be terminated; soldiers cannot be fired the same way. When requirements change, the contractor vehicle offers more flexibility than force structure.
Structural Dysfunction
- ▸Revolving door: Senior DoD officials retire and join the companies they previously awarded contracts to. The "Big 6" primes (Lockheed, RTX, Boeing, Northrop, L3Harris, General Dynamics) employ thousands of former senior DoD and military officials.
- ▸Hollow force risk: As organic capability atrophies, DoD becomes dependent on contractors for functions it can no longer perform itself. This creates structural dependency that is difficult to reverse.
- ▸Budget accounting obscures costs: Contractor costs in O&M accounts are harder to compare against personnel costs in MILPERS accounts. The accounting structure makes the premium invisible in standard budget exhibits.
- ▸Cost-plus incentives: Many services contracts are cost-plus: the contractor is reimbursed all costs plus a fee. This removes the structural incentive to minimize costs. KBR's laundry is the clearest example.
Section 04
The Clearance Market: Government Creates the Asset, Then Rents It Back
A TS/SCI clearance costs the government $15,000–$25,000 to adjudicate, plus ongoing costs for renewal, polygraph, and security program oversight. The cleared service member who holds that clearance is, in economic terms, a government-created asset.
When that service member ETSs and joins Booz Allen Hamilton, SAIC, or Leidos, the government paid to create the clearance and now pays the contractor 2–3× to rent the cleared worker back. The cleared talent market is tight enough that defense contractors routinely offer separating service members 50–100% salary increases for the same cleared work they were doing in uniform.
Industry refers to this as the “cleared talent pipeline.” DoD has attempted to address it with post-clearance service commitments, with mixed results. The structural incentive — that private sector compensation for cleared work significantly exceeds military compensation for the same work — has not changed.
Section 05
The Famous Cases: Documented Overcharges and Waste
LOGCAP — The Laundry
KBR billed the Army $45 per load of laundry during Operation Iraqi Freedom under the Logistics Civil Augmentation Program (LOGCAP). The Army's own laundry units cost approximately $4 per load. The DoD Inspector General confirmed the overcharge. KBR received LOGCAP contracts worth over $39 billion during the Iraq and Afghanistan wars. The contract structure — cost-plus with fee — meant KBR was reimbursed all costs plus a percentage. There was no structural incentive to minimize expenses.
Source: DoD IG Report D-2004-057; SIGIR reports on LOGCAP
Afghanistan Reconstruction — $15B in Documented Waste
The Special Inspector General for Afghanistan Reconstruction (SIGAR) documented approximately $15 billion in waste over 20 years of contracted reconstruction. Projects ranged from roads built to inadequate specifications to power infrastructure that could not be maintained after US withdrawal. The common thread: contracted deliverables did not match operational requirements because the contractors did not bear the consequences of failure.
Source: SIGAR Quarterly Reports, sigar.mil (public)
F-35 Sustainment — $44,000 Per Flight Hour
The F-35's Performance-Based Logistics (PBL) contract with Lockheed Martin carries a sustainment cost of approximately $44,000 per flight hour — one of the highest in DoD history. The Government Accountability Office has repeatedly flagged cost growth in F-35 sustainment. DoD has responded by renegotiating terms, with limited success. The structural problem: once a weapons system exists, the contractor who built it effectively monopolizes its sustainment.
Source: GAO-23-106047; DoD F-35 Selected Acquisition Report
The Revolving Door — By the Numbers
The Project on Government Oversight (POGO) tracks the "revolving door" between DoD senior leadership and defense contractors. Between 2008 and 2018, the top five defense contractors (Lockheed, Boeing, Raytheon, General Dynamics, Northrop) hired over 645 former DoD officials, generals, and admirals. This is legal. It is disclosed under FARA and ethics regulations. It creates an alignment of incentives between the officials who award contracts and the companies that receive them that is structurally difficult to separate from the acquisition process.
Source: POGO "Brass Parachutes" report (2018); DoD revolving door disclosures
Section 06
What Reform Would Look Like
Not advocacy. These are the proposals that have been formally advanced by Congress, OMB, or DoD. Outcomes noted where known.
Obama-Era In-Sourcing (2009–2011)
Limited successThe Obama administration directed DoD to reduce contractor headcount and bring more functions in-house. The initiative converted approximately 15,000 contracted positions to civilian employees. It stalled due to budget constraints and contractor lobbying. Most in-sourced functions were administrative, not technical or cleared intelligence work.
Inherently Governmental Functions (OMB Circular A-76)
Inconsistently enforcedOMB Circular A-76 defines functions that the government must perform with organic employees — including functions that involve the use of force, coercive authority, or final decision-making on government matters. Enforcement is inconsistent, particularly in intelligence and cyber, where the definition of "final decision-making" is blurry and contractors often perform functions that are substantively identical to inherently governmental work.
PPBE Reform Commission (2023)
Recommendations submittedCongress's own Commission on Planning, Programming, Budgeting, and Execution (PPBE) Reform submitted recommendations in 2023. Among them: greater transparency in service contract spending, better tracking of full-time-equivalent contractor headcount, and improved tools for comparing organic vs. contracted costs. Implementation is ongoing and partial.
Minimum Organic Capability Requirements
NDAA language, inconsistently fundedCongress has periodically directed DoD to maintain certain capabilities organically — particularly in software, AI, and certain intelligence functions. This NDAA language is often underfunded in subsequent appropriations. The structural incentive — that contractors are easier to scale than military billets — remains.
Frequently Asked Questions
Why does DoD pay more for contractors than organic military when the cost is higher?
Three legitimate reasons and several structural ones. Legitimate: contractors provide surge capacity that can be scaled without career commitments; some specialized skills don't exist in uniform at scale; contractors can be terminated more easily than soldiers. Structural: O&M accounts obscure contractor costs compared to personnel accounts; the revolving door aligns incentives between officials who award contracts and companies that receive them; and once organic capability atrophies, DoD becomes dependent on contractors it cannot easily replace.
What is a GSA Multiple Award Schedule rate and why does it matter?
The General Services Administration (GSA) publishes negotiated contract vehicles — including Multiple Award Schedules — that set billing rates for contractor services. These rates are publicly searchable at gsa.gov. When you see a billing rate cited for Booz Allen or Leidos, it typically comes from their publicly disclosed GSA Schedule rates, which are binding on those contracts. The rates reflect what the government actually pays per hour of contractor labor.
What is the "clearance tax" on contractor billing rates?
A TS/SCI clearance costs the government $15,000–$25,000 to adjudicate. Maintaining a cleared workforce requires ongoing polygraph renewals, investigation costs, and security program overhead. Contractors charge a premium for cleared personnel because the supply of cleared workers is constrained and the cost to maintain clearances is real. When a service member ETSs with a TS/SCI and joins a defense contractor, the government paid to create that clearance and now pays the contractor 2–3× to rent the cleared worker back.
What is DCAA and how does it audit contractor costs?
The Defense Contract Audit Agency (DCAA) is the DoD agency responsible for auditing contractor costs. DCAA audits billing rates, overhead allocations, and cost-plus contract charges to verify that contractors are billing the government for allowable, allocable, and reasonable costs. DCAA audit reports are partially public — findings of significant overcharges or cost misrepresentations are documented in public reports available on dcaa.mil.
What is LOGCAP and why is it controversial?
The Logistics Civil Augmentation Program (LOGCAP) is a pre-competed contract vehicle that allows the Army to quickly hire a single contractor for large-scale logistics support during contingency operations. LOGCAP was the vehicle for KBR's work in Iraq and Afghanistan. Its controversy stems from the cost-plus contract structure: the contractor is reimbursed all costs plus a fee, creating no structural incentive to minimize costs. LOGCAP has been periodically restructured; KBR was replaced by a multi-contractor vehicle in 2007.
What happens to organic military capability when it is contracted out?
When a function is contracted out, the military typically reduces or eliminates the billets that performed it. Over years and decades, the institutional knowledge, doctrine, training pipeline, and leadership expertise for that function atrophies. DoD then becomes structurally dependent on the contractor — it cannot easily rebuild the organic capability even if it wanted to. SIGAR documented this pattern explicitly in Afghanistan: reconstruction capabilities contracted out in the 2000s created a dependency on contractors that DoD could not easily reverse when the contractors left.
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Sources and methodology: Military pay data from FY2024 DoD Military Pay Tables (milpay.army.pentagon.mil) and published BAH rates. DoD all-in cost figures derived from the DoD “Green Book” (Financial Management Regulation) personnel cost accounting. Contractor billing rates from GSA Multiple Award Schedule publicly searchable at gsa.gov. Employee compensation data from ClearanceJobs.com Annual Compensation Survey. DCAA audit findings from public DCAA quarterly reports (dcaa.mil). LOGCAP cost data from DoD IG Report D-2004-057 and SIGIR quarterly reports. Afghanistan waste figures from SIGAR (sigar.mil). F-35 sustainment cost from GAO-23-106047 and DoD F-35 Selected Acquisition Report. Revolving door data from POGO “Brass Parachutes” (2018). PPBE Reform Commission from the 2023 Commission on Planning, Programming, Budgeting, and Execution Reform final report. All figures are approximate — consult primary sources for official data.