In December of 1994, President Bill Clinton announced that the Office of Personnel Management's (OPM) investigations unit would be privatized. This unit is a crucial part of the operation of the federal government; investigations are used to determine access to classified information, as a basis for hiring or firing, and for granting access to sensitive material. Nevertheless, at the time, the program was $35 million in debt and continuing to lose money, due in large part to decreased demand for investigations caused by a shrinking federal workforce. The critical decision at the time was what form the privatization should take.
To keep the remaining employees in the investigations unit together without sacrificing performance, OPM decided that spinning off the program into a private company under an Employee Stock Ownership Plan (ESOP) would be the wisest strategy, even though no such effort had been carried out at a federal government agency. In doing so, OPM created a new company called U.S. Investigations Services, Inc. to carry out the existing function of the federal investigations unit. All of the affected OPM employees were offered jobs with the new company, at the same pay and location; more than 700 (90%) of those who received offers chose to become employees and owners of USIS.
While some employees and many agency customers initially opposed the privatization, the results of the initiative have convinced all but the most stubborn of critics. Due to profit sharing and the success of the company, the average USIS employee received bonuses of more than 25% of their yearly salary, and stock equal to 43% of salary over the first three years of the new company's existence. Operating efficiencies created by the program have allowed USIS to roll back the prices it charges its customers for investigations to 1989 levels, while preserving the same quality assurance plan, timeliness, and security standards as under the OPM.
Taxpayers have saved money as well. When the Clinton Administration first announced the spin off of the program, the Office of Management and Budget projected a related savings of about $30 million over five years. The savings were expected in three areas: substantial reductions in the government's pension liabilities; contractual obligations to reduce the prices charged for federal investigations; and increased government revenue through the taxes that USIS pays on its earnings. By 1999, the total dividend to American taxpayers has been about $20 million per year, exceeding $65 million since the privatization occurred.
Through its increased efficiency and expanded customer base as a private company, USIS has received contracts for more than $36 million of investigations that could not have been carried out before the privatization, including a serious backlog of internal investigations at the Department of Defense. Since the OPM investigations privatization, several facilities of the DOD, faced with their own downsizing, have shown interest in replicating OPM's initiative.