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Apr 30, 2012


Scott Amey

DFENS, I received the following from an executive compensation geek, I mean guru:

The allocable portion of both direct and indirect costs (to include executive salaries) has always been reimbursable under flexibly-priced (e.g., cost-reimbursement) contracts. Similarly, for fixed-price contracts where cost or pricing data is submitted, these costs have always been permitted to be included. This dates back to Treasury Department directives from WWI and most famously to Treasury Directive 5000 (1940) which was used during WWII for cost determinations. These were subsequently revised and incorporated into the ASPR, FPR, and eventually, in 1984, into the FAR. While some individual cost principles are not required by statute, many of those elements of the cost principle pertaining to compensation (FAR 31.205-6), including executive compensation, are covered in statute(s).


Mike is exactly right! These changes are well within the OFPP's control, and the OFPP is well within the control of the federal contractors. They react only to what these contractors want and do not give a damn about the US taxpayer. All that has gone wrong in federal procurement in the last 30-40 years has been the result of rules changes just like this one. In fact, it was a "rules change" that allowed contractors to be reimbursed for executives' salaries in the first place. The Department of Defense did not make such reimbursements years ago. When did they start doing this? Who knows. It was not a subject of public debate. It was not voted on by Congress or any elected official. It was purely the decision of a bureaucrat who answers to no one. The same was true of the decision to start paying contractors a profit on weapons development. That was never debated in this country. It was, again, purely the decision of an unelected, unaccountable Washington DC bureaucrat as most procurement rules are.


OFPP had a choice whether to increase the cap. It is not forced under law to make the change and yet it did. In a time of Federal employee pay freezes and other cost savings being forced on Government agencies, OPFF turned chicken and gave in to contractors. As we have been numerous times in the past, OPFF lacks a backbone with contractors. Did we really expect OPFF to act in the best interests of the taxpayers?


The federal government should reimburse the government contractors for exactly $0 for their so called "executives". Hell, the janitor provides more direct support for a federal contract than the CEO does, and janitors' salaries are completely on overhead budget. Executives should be the same.


Mon. Amey: for a gentlemen who takes pride in the precise use of words, you are surprisingly sloppy in calling the cap a "subsidy." You know that neither the cap, nor executive pay reimbursed at any level, constitutes a subsidy as any economist or business analyst or regulator would define it. Has it come to this, i.e., that POGO must make its points by creating its own definitions? Let the facts speak for themselves, man.

The real problem with "subsidy" is that it lulls the great unwashed in the media, academia, the general public, and, dare I say, "good-govt" orgs, who do not know the difference between revenue and profit and who easily forget that a contract calls on a company to deliver something, e.g., product or services. POGO has been guilty of this disgraceful obscuring of the facts before. You speak of contracts as if they were gifts conferred for political reasons, with nothing due the government in return. (We'd agree that some times the govt gets nothing, e.g., LCS ships or USCG cutters with cracked hulls, as if the sailors would not notice them, eh?) But you'd like to prolong the notion and that all contractors are thieves and brigands who never deliver anything. This is going out on a small limb, but I assert: the federal government worker corps, as a group, is far less likely to delivery anything of value than govt contractors. POGO needs to examine its own value proposition and re-think whether its polemics are crowding out honest, dispassionate research and achieving very little impact when it could have more influence by clipping the hyperbole and playing word games that are typical of Huff Post headlines. Give it some thought, sir.

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