Obama to Seek Much Lower Cap on Contractor Exec Pay

This story has been updated. 

Federal contractors would see sizable cuts in government reimbursements for employee salaries under draft legislation the White House plans to send Congress next week.

In a bid to “stop excessive payments to contractors,” the plan would expand across the government a small provision in last December’s National Defense Authorization Act and cap the reimbursement rate at the president’s salary (currently $400,000), according to Joe Jordan, administrator of the Office of Federal Procurement Policy, who made the announcement Thursday in a blog and spoke to reporters on a conference call.

“The proposal builds on previous administration proposals and language included in the president’s budget, and marks another important step in our ongoing effort to buy smarter and end wasteful, fiscally imprudent contract spending,” Jordan said.

The move would expand the cap’s coverage from just the top five highest-paid contractor employees to all employees, a change long sought by employee unions and some lawmakers.

Under a law that took effect in 1997, contractor executive salaries are reimbursed according to an industry-average formula set annually by the Office of Management and Budget -- currently $763,000 for contracts let in fiscal 2011. Contractor pay has grown by 300 percent in the past 15 years, outpacing inflation, Jordan said, noting that OMB in just a few weeks will be required to raise the cap to more than $950,000.

“Taxpayers have been required, by law, to foot this unaffordable expense, despite the fact that this rapidly increasing cost has had little bearing on the value agencies receive under their government contracts,” he said.

Jordan stressed that nothing in the proposal prohibits companies from paying their executives as they please, it simply caps the amount taxpayers must cover under cost-plus contracts. Exceptions would be made if “an agency determines such additional payment is necessary to ensure it has access to the specialized skills required to support mission requirements, such as for certain key scientists or engineers,” Jordan said. Under the current system, the cost of reimbursing contractors for salaries “for agencies is just overhead, and they receive no benefit,” Jordan said.

The estimated savings -- which would apply to future contracts, not existing ones-- would be “hundreds of millions of dollars,” Jordan said, though he declined to be more specific. The plan would affect about one-third of the federal contracting pie, and the number of executives affected would be “in the thousands,” he added, particularly in contracts for “first of a kind, one of a kind purchases” which is common in the Defense Department.

Casting the draft bill as part of President Obama’s Campaign to Cut Waste, Jordan said agencies should be able to “take these savings and put them into mission-critical work.”

Legislation similar to the White House plan has been pushed by Sens. Barbara Boxer, D-Calif., and Chuck Grassley, R-Iowa, and Rep. Paul Tonko, D-N.Y. Jordan on Thursday said, “I believe Congress will heed the urgent call to restore fiscal responsibility before more money is wasted.” A Government Accountability Office report on the topic is due this summer.

Asked whether unions would be pleased with the expanded approach, Jordan said, “I sincerely hope they’ve recognized the president’s continued calling on Congress to enact a solution.”

But in a statement Thursday, the American Federation of Government Employees said the plan doesn’t go far enough, noting that the administration’s fiscal 2014 budget submission supported a cap at the level of the vice president’s salary (currently $230,700).  The union also noted that the latest proposal would not apply to fixed-price contracts, would not go into effect for 180 days and allows agencies to “ignore” the limit under the exception for recruiting contractors with specialized skills. 

“The administration’s proposal is completely inadequate,” said AFGE National President J. David Cox Sr., in the statement. “It still requires taxpayers to reimburse contractors for exorbitant sums, while federal employees are suffering pay freezes and cuts due to furloughs.” 

The Professional Services Council, a contractors group, has long opposed lowering the caps, saying the move would inhibit industry’s quest for talent.

(Image via Heymo/Shutterstock.com)