Explainer

Conflicting contractor caps in budget, defense bill

pen and check

Government contractors will be keeping a close eye on President Barack Obama's pen in the next few days. A lot of money is riding on when he signs two bills set to reach his desk.

The Bipartisan Budget Act of 2013 slashes compensation caps for contractor executive pay to $487,000 a year from their recently increased level of more than $950,000. The change would apply to civilian and defense contractors alike and aligns closely with an administration proposal to tie reimbursement caps to the president's $400,000 salary. The fiscal 2014 defense authorization bill, cleared by the Senate on Dec. 19, lowers the contractor compensation caps to $625,000.

Both bills have been cleared by Congress for Obama’s signature. In some respects there is more urgency to signing the defense measure because it contains authorizations such as payment of reenlistment bonuses that will expire at the end of the calendar year. The lower caps included in the budget were never scored by the Congressional Budget Office, and if the higher caps prevail, it won't affect the projected deficit reduction from the new spending levels.

Whichever bill the president signs last is the one that will have the force of law on the contractor caps, because it will contain the most recent amendments to the applicable statutes. However, just because the president is likely to get the budget first is no guarantee he will sign it first.

"We'll be pleasantly surprised if [Obama] doesn't go with the lower number," said one seasoned observer who discussed the situation with FCW on background. "All indications are that the president had made lowering contractor caps a priority."

"I would think as a matter of timing, the administration would do everything they possibly can to make sure the [lower] cap will be the one that becomes law," said Scott Amey, general counsel for the watchdog group Project on Government Oversight.

The $487,000 figure is based on the previous $250,000 cap adjusted for inflation. The larger number represents a compromise between the House and Senate Armed Services committees. Both bills eliminate a formula for establishing contractor compensation caps that takes into account executive salaries at large private companies. The new caps will be adjusted for inflation. Both the budget and the defense bill allow for exemptions from the caps for qualified specialists. The defense authorization specifies scientists, engineers, medical and cybersecurity personnel for exemptions. The budget requires agency heads to establish "narrowly targeted" exceptions for specialists.

The administration is well aware of the conflict between the numbers, but was waiting for the  defense bill to pass late Thursday night before making any announcement about which order the bills would be signed in.

In a press briefing on Dec. 19, White House spokesman Jay Carney did not mention signing the budget measure when discussing the president's plans before leaving for vacation. The Office of Management and Budget suggested the White House might prefer the cap in the budget bill.

"We are pleased that Congress is taking action to address the unjustifiably-high contractor executive reimbursement required under current law," OMB spokesman Frank Benenati told FCW in an emailed statement. "The budget agreement includes a new lower cap and other related provisions that are very similar to the legislative proposal put forward by the president earlier this year." 

Still, Alan Chvotkin, executive vice president and counsel for the Professional Services Organization, which represents contractors, told FCW that he expects the defense caps to win the day.

"We expect the budget bill to get signed in a day or so, and the defense bill to get signed in the normal course of activities." However, he points out that there's nothing to stop the president from signing the bills in the order in which he chooses.

"We'll be watching very closely," Chvotkin said.

Reader comments

Fri, Dec 20, 2013

Of course the Presidential salary does not cover all the perks he receives. As an example he has a rent/mortgage free home. His travel is paid for by us, even when he goes on vacation or plays a round of golf. So to tie CEO salary to his salary is like comparing apples to oranges.

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