COMPARATIVE RESEARCH OF LABOR COSTS IN NAVAIR SMALL AND LARGE BUSINESS ENGINEERING SERVICE CONTRACTS

Abstract

Procurement is the main method that the government uses to obtain goods and services. In 2017, the federal government awarded $508 billion in contracts for the purchase of goods and services. The largest share of government contracts is from the Department of Defense, which constituted 63 percent ($320 billion). The government contracts can be awarded to both small and large businesses through full and open competition. However, the government is obligated to offer 23 percent of the contracts to small businesses. This study sought to compare and analyze labor rates in small and large businesses, the effect of labor hours and place of performance on labor costs, and whether contracts to small businesses drive up costs to the government. The focus of the study was on small and large businesses classified as North American Industry Classification System (NAICS) code 541330 (Engineering Services). The study found that labor costs in similar NAICS code 541330 contracts awarded to small and large businesses differ. In technical jobs, small businesses’ average labor rates are lower than large businesses’ average labor rates, both at Headquarters/Program Executive Office (HQ/PEO) and Naval Air Warfare Center, Aircraft Division (NAWC AD). Place of performance affects the labor cost. This study found that, overall, small businesses have lower labor rates compared to large businesses.