Contracting

Bill seeks limits on contractor executive reimbursements

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The mammoth bipartisan immigration reform bill being hammered out in the Senate contains an amendment that would limit government reimbursement of executive salaries for Department of Homeland Security and National Guard contractors, and the amendment's sponsor is looking to extend the cap to all government contracts.

While the authors of the legislation say they're simply battling increasing waste and unnecessary spending, a representative for government contractors called their argument "factually false," aimed simply at inflaming public opinion over a complex spending issue.

On June 19, the Senate approved an amendment backed by Sen. Joe Manchin (D-W. Va.) tying the government's reimbursement of contractor executives working for DHS and the National Guard to the vice president's $230,700 salary level. The amendment was voted through 72 to 26.

On June 20, Manchin, along with Sens. Barbara Boxer (D-Calif.) and Chuck Grassley (R-Iowa) and Rep. Paul Tonko (D-N.Y.), introduced the Commonsense Contractor Compensation Act of 2013 in both the House and Senate. That measure would apply the $230,700 reimbursement benchmark to all contracts that include the payments.

Currently, contractors that are paid based on their incurred costs can demand reimbursement for executive salaries that are related to the contract in question. Federal law has limited government contractor executive reimbursement since the 1990s, but according to a new Government Accountability Office report, the cap has dramatically increased in real terms -- by 63 percent -- since then. The cap, set at $693,951 in 2010, rose to $763,029 for 2011 and 2012. It is set to reach $950,000 this year if no legislative action is taken.

With the real-term escalation in costs, administration officials and lawmakers alike say they see a looming spike in unnecessary costs.

"There's no justification for taxpayer-funded payments to be higher than the salary of the president's cabinet members," said Grassley.

The House-approved version of the National Defense Authorization Act (NDAA) includes an amendment to curb the cap's growth, limiting an initial increase to $763,000 instead of $950,000, but allowing smaller incremental increases in the future. The Senate is preparing to vote on its version of the NDAA in the coming days.

That's not enough, according to Tonko. He wants a deeper cut to the reimbursement payments. "It's a wasteful, callous disregard for taxpayer money," he said. Curbing the reimbursements, he said, could save hundreds of millions of dollars for a government that's strapped for cash.

"We're not telling them not to pay top talent top dollar," said one congressional aide familiar with the new legislation. "We're saying it shouldn't come out of the taxpayer's pocket."

That kind of talk rankles Stan Soloway, president and chief executive officer at the Public Services Council, who says that kind of argument is aimed at public opinion, not at settling the reality of federal contractor executive reimbursement payments. "The caps are caps. Few people get paid the cap. It's not an entitlement. The government has the responsibility to make sure payment is fair and reasonable," he said, adding that reimbursement payments are also subject to government review before they're made and audits after that.

Soloway said the inflammatory language is getting in the way of more practical discussion over how the government compensates companies for services. "We've said we're comfortable freezing and reviewing the caps," said Soloway. The language being used by lawmakers on the issue is misleading and amounts to sound bites with little substance.

For instance, he said using the presidents' and vice presidents' salaries as benchmarks is a rhetorical ploy, especially in down economic times. He called the benchmarks "arbitrary" and "misleading."

"There is a reasonable argument over how contractors are paid, especially in a tight economy," said Soloway, but he said that kind of language doesn't help the discussion. Contractors, he said, operate in a different environment than government employees. Contractors don't compete with the president on salary, he said. "We compete for top executive talent in Silicon Valley."

The bill includes a narrow exemption to the cap for scientists, engineers and other specialists if an agency determines it is necessary to ensure access to individuals with specialized skills, according to the lawmakers. Additionally, they emphasized that the measure would only limit what an executive or other employee is paid by the federal government – the employee could still receive additional compensation from the contractor's other revenue streams.

About the Author

Mark Rockwell is a staff writer covering acquisition, procurement and homeland security. Contact him at mrockwell@fcw.com or follow him on Twitter at @MRockwell4.

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Reader comments

Tue, Nov 19, 2013 Gerald Sutliff 93304

Why not limit executive, CEO levels, to the suggested 230,000 but also require that the other monies be spread among out the other employees, especially the lower levels. That wouldn't cost us while providing main street stimulus which in turn would raise tax revenue without requiring any acts of Congress; yes, executive would do it.

Mon, Jun 24, 2013 DC Fed Washington DC

Is the Fed going to stop buying product from Oracle because Larry Ellison is getting paid too much? This is all hot air and posturing by people who dont have to get the work done. We wouldnt care about executive compensation if the Fed wasnt constantly trying to micro-manage its suppliers. Imagine walking into Home Depot and demanding to know the exec comp rates before you would agree to by a hammer from them (or 10,000 hammers if you want to buy at the scale of the Fed). Its time to simplify this whole process; decide what you need, put it out for bids with straight up unit pricing and if the product or service price is in line with the value you place on it for your need, buy it. Otherwise, buy it from someplace else or just walk away until you get a better price or more funding.

Mon, Jun 24, 2013 DToad101

As a former Fed and now a contractor, who'll never go to the executive ranks, my question is, Does the President or VP pay Rent for their government provided digs or other government provided cost? If not those figures should be figured into the total compensation allowed the contractors. Seems only fair. Or make the President and VP and others pay for them.

Mon, Jun 24, 2013

Wow - inflammatory language aimed at public opinion? Gee isn't that the basis for determining via CBO that Federal employee are overpaid and really deserve to have their salaries frozen for 3 or more years? Eventhough OPM and GAO seem to think that we are actually underpaid. And are these same overpaid contractor execs counted in the so called Average American Pay Scale? Probably a CBO oversight...

Mon, Jun 24, 2013

And while we are trying to save money, let's cut back on the very generous benefits and pensions of the Congress and Senate.

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