Contracting

Bill seeks limits on contractor executive reimbursements

hand transferring coins

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 senior staff writer at FCW, whose beat focuses on acquisition, the Department of Homeland Security and the Department of Energy.

Before joining FCW, Rockwell was Washington correspondent for Government Security News, where he covered all aspects of homeland security from IT to detection dogs and border security. Over the last 25 years in Washington as a reporter, editor and correspondent, he has covered an increasingly wide array of high-tech issues for publications like Communications Week, Internet Week, Fiber Optics News, tele.com magazine and Wireless Week.

Rockwell received a Jesse H. Neal Award for his work covering telecommunications issues, and is a graduate of James Madison University.

Click here for previous articles by Rockwell. Contact him at mrockwell@fcw.com or follow him on Twitter at @MRockwell4.


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