In a new twist to an old tale, Sandia National Laboratories (SNL)—whose facilities are owned by the Department of Energy, but whose employees work for Sandia Corporation, a subsidiary of behemoth defense contractor Lockheed Martin Corp. (2012 sales: $47.1 billion) that manages and operates the lab for DOE—has been found to have violated internal Sandia policies by hiring former employees as subcontractors at much higher wages, according to a report released last week by the DOE Inspector General (IG).

As Rep. Darrell Issa (R-California) said last year, the more familiar pattern is when “federal employees retire from government service on a Friday and come back on a Monday either as a rehired annuitant or as a contractor,” at a higher wage. In the case of SNL, prime contractor Sandia Corp., which relies heavily on subcontractors, spending about 38% of its total budget on them, hired former employees as subcontractors and paid them a higher hourly rate than the employees had received prior to retiring.

The IG found that “[i]n the two instances that violated Sandia policy, the former employees were paid hourly rates of $110.00 and $95.36, whereas at the time of retirement the employees’ hourly rates were $81.44 and $68.89, respectively.” These rates—higher by 35% and 27%--can yield higher costs for U.S. taxpayers.

The IG concluded that although it found violations of Sandia’s internal hiring guidelines, no recommendations were needed because it found no violations of federal laws, regulations or policies. The Office of Management and Budget is considering implementing cost comparisons as a way “to help agencies save money and drive better results.”

Given that service contract spending exceeds $300 billion annually and accounts for nearly 80 percent of all civilian agency contract spending, cost comparisons may well serve to curb federal spending, although the potential savings would probably do little to reduce the federal budget deficit.

-Matt Bewig

To Learn More:

Retire Today, Do the Same Job for More Pay Tomorrow (by Scott H. Amey, POGO)

Allegations Concerning Contracting for Services of Former Employees at Sandia National Laboratories (Department of Energy, Office of Inspector General) (pdf)