Washington's Brain Drain

As government workers retire in droves, the private sector is itching to take up the slack

On June 1, Warren C. Fretwell retired after 33 years of processing claims at the Social Security Administration. "That was long enough on the rock pile for me," Fretwell chuckles. "Maybe too long."

Across the federal government, tens of thousands of baby boomers like Fretwell are hitting retirement age: In 2006, more than 60,000 people bowed out of the civil service. The federal Office of Personnel Management expects 2009 will be the peak year for boomer retirements, when more than 61,000 workers will leave their jobs.

As the wave of retirements hits, agencies are offering enticements--from signing bonuses to subsidized college degrees--to attract new blood. Few expect the government to fill all the slots itself, however. And waiting in the wings are contractors like Accenture (ACN ), BearingPoint (BE ), and Computer Sciences (CSC ). They're angling to take over swaths of the bureaucracy and further accelerate the outsourcing of the government. "For us, that's where the business opportunity lies," says Lisa M. Mascolo, Accenture's group CEO for public service. "My expectation is not to replace federal workers body for body, but for us to help transform the mission."

Agencies aren't against outsourcing some of the work. But not all government jobs are best handled by contractors. So everyone from the Food & Drug Administration to the Treasury Dept. are amping up their efforts to recruit and retain scientists, engineers, back-office managers, report writers, and so on. It's a challenge because government pays much less than the private sector. Plus, Gen Y may not be as gung-ho about public service as their idealistic boomer forebears. "It's a big sacrifice to work in government," says Harvard public management professor Steven Kelman. "This is a crisis."

The Nuclear Regulatory Commission, which monitors the nation's atomic energy plants, is feeling the pain. Even as the retirement wave hits, the agency needs to boost its workforce to prepare for an expected resurgence of the nuclear power industry. The NRC aims to grow by 200 positions a year and needs to hire twice as many to offset the retirements. To lure young engineers, scientists, contract writers, and managers, the agency is dangling signing bonuses of $5,000 or more, offering to pay for second or third degrees, and promising significant authority right off the bat.

Many agencies are recruiting harder at colleges. The State Dept., for example, places senior foreign service officers at Howard University in Washington, the City College of New York, and other campuses around the country. In an effort to retain employees, the government now forgives federal student loans for those with 10 years of service.

Government contractors are betting the agencies' recruitment efforts will go only so far. Where are they most likely to replace retiring boomers? They are loath to say for competitive and political reasons. But it's a good bet that the most likely candidates include the relatively new Homeland Security Dept. and its struggling Federal Emergency Management Agency, where managers reeling from the Hurricane Katrina debacle may have an appetite for new ideas. Less likely is the State Dept., where a more traditional mind-set prevails. And while contractors typically take over back-office and IT positions, they're vying for some unusual jobs these days. For example, the Army Contracting Agency, which supplies troops in the field, is looking to outsource the writing of quarterly reports to Congress on behalf of the special inspector general for Iraq reconstruction.

For a hint of how contractors could insinuate themselves deeper into government, consider the project that Computer Sciences Corp. is running at the Army Materiel Command, which manages logistics. The main computer system used a language that was rapidly becoming obsolete. As more and more federal employees retired, it became ever harder to find people who could do the job. So the Army brought in CSC on a 12-year, $830 million contract that expires in 2011. At first, the company scoured the nation for programmers who were still proficient in the dying language. Then CSC updated the computers. An effort that once took 400-plus employees is now handled by about 150 CSC contractors.

Harvard's Kelman says government managers often prefer to work with contract workers because they're easier to fire or remove for poor performance. Naturally, this doesn't sit well with federal employee unions, which argue that contractors end up costing the government more money than the workers they replace, largely because contractors are paid higher salaries and their employers build in healthy profit margins.

David M. Holtsclaw is president of Local 145 of the American Federation of Government Employees. He works at a Navy facility in Crane, Ind., where the contractor Booz Allen Hamilton has a five-year contract worth $27 million to provide back-office support. "A lot of folks are retiring on a Friday and coming back on Monday working for contractors," says Holtsclaw. "This is costing us a lot more money in the long term." Booz Allen spokesman George Farrar responds that "the government made a determination that it needed contractor support."

Asked if taxpayers will pay more for the same amount of government once the boomers have all retired, Ruby DeMesme, who handles manpower issues for BearingPoint's government arm, laughs and says, "I don't want to answer that question." She adds, "I don't think you should measure it in dollars; I think you should measure it in outcome. I think there's an opportunity for the government to become more efficient."

In truth, it may already be too late to debate the point. Even if the Democrats win the White House and make efforts to rein in the contractors, the outsourcing wave is well under way. "We know the age of the workforce, and we know they're retirement-eligible," says Ronald C. Flom, HR chief for the federal Office of Personnel Management. He points to his agency's work in conducting background checks for new hires. The project employs about 1,600 government workers--and 8,000 contractors. As Flom says: "That's just a fact of life."

By Eamon Javers

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