Reps. Tonko and Speier Seek to End Ever-Increasing Taxpayer-Funded Contractor Compensation

Source: Dear Colleague letter from Reps. Tonko and Speier, July 2012

Updated with video below

By SCOTT AMEY

Today, the House takes up the Defense Appropriations bill. There has been much talk about DoD spending cuts and the impact of sequestration (but maybe the sky isn't falling). One way to realize savings would be to reduce the federal government's reimbursement of contractor compensation. Senators Boxer (D-Calif.) and Grassley (R-Iowa) and Representative Tonko (D-N.Y.) have been leading the charge to reduce the compensation cap for years.

The Senate took up the proposal in the National Defense Authorization Act of 2013 (NDAA), which has yet to be passed and signed by the president. After expanding the scope of coverage of the cap from the top five executives to all contractor employees (with a few occupational exceptions) last year, the Senate is now proposing to lower the cap from $763,029 to $230,700 (S. 3254, Sec. 842).

The Tonko-Speier amendment  reaffirms the Senate’s action, proposing to reduce the compensation cap for contractors and subcontractors to $230,700.

For years, the Project On Government Oversight has supported congressional efforts to reduce the burden of federal contracting costs, including contractor compensation, on taxpayers. Compensation based on financial performance is more appropriately paid from corporate earnings or equity rather than as a base contract cost passed onto taxpayers.

The possible savings are in the billions.

Army testimony before the Senate Homeland Security and Governmental Affairs Committee, Contracting Oversight Subcommittee estimated that $6 billion would be saved by the Army alone if the cap was reduced to $400,000. When asked about a reduction of the cap to $200,000, the Army official replied that the “President’s proposal to cap contractor pay at a level equal to the top of the Federal Executive Schedule is worth considering as part of an holistic look at how spending on contract services can be reduced across the Department of Defense.” However, he warned that “[a]ny significant reduction in the cap on contractor pay needs to take into account the possible second- and third-order effects of such a decision.”

There is no doubt the contractor compensation has dramatically increased through the years and requires readjusting. Supporting the Tonko-Speier amendment to H.R. 5856 and Sec. 842 in the Senate’s version of the 2013 NDAA are a step forward in reducing one financial burden on taxpayers that is not in step with current efforts to make the government more cost efficient.

Below is a video of Rep. Tonko on the House floor talking about a pay freeze for feds and a $70K raise for contractors, and the need to reign in taxpayer reimbursement for contractor compensation.

Scott Amey is POGO's General Counsel

Follow @SAmeyJD

Comments

[Scott Amey]

Bloviaticus,

The saving would be significant whether in the billions or tens of billions annually. A riot would be great but I'm unsure that most shareholders would realize or understand how they are burdened with the difference.

It is very hard to justify freezing federal salaries but allowing contractors to bill $70K more for compensation this year. If lawmakers are serious about cutting big govt, reducing the size of govt, sustainability, and making ends meet, contractor compensation, personnel, and services are going to have be placed on the chopping block.

Congress is finally getting the picture when it comes to reducing DoD spending (see the Mulvaney (R-SC) and Frank (D-MA) bi-partisan amendment to cut the overall level of the DoD approps bill by $1.1 billion). That money has to come from somewhere and all spending should be considered.

[Bloviaticus]

Look. This is simple. It won't save billions. The charges do not add up to anything like that. Mid- and large-size firms will resort to paying any overages out of the bottom line, which is their discretion to do--as long as shareholders do not riot. Some of these people are worth a lot more than a govie. And some govies are woefully underpaid, but that does not include many below SES (almost none). But those with the big jobs in the SES cannot possibly scale their salaries to their scope--and they might earn bupkus in the private sector, even from a feelthy contractor. And the career types say they do it for love of public service anyway. Regardless, it is critical to not pay the contractor biggies for doing little work or delivering crap. In the government, those two outcomes are usually not penalized, but we can penalize the contractors.

[Scott Amey]

@matthewweigelt tweeted -- Contractor salary cap at VP level: out of order

I'm awaiting confirmation and imagine that the reason will be legislating in an approps bill.