Proposed benefit for certain contractors draws fire

A panel of federal acquisition experts on Thursday panned a plan reportedly under consideration by the Obama administration that would give a leg up in the bidding process to contractors who pay their employees higher wages and benefits, suggesting that the proposal would make the procurement system more costly and inefficient.

According to a Feb. 1 letter from five Republican senators to Office of Management and Budget Director Peter Orszag, the administration is mulling a governmentwide policy that would give additional weight in the source-selection process to labor-friendly companies. Critics have argued that the plan would heavily favor unionized companies.

The Daily Caller news Web site first reported on the proposal in early February.

The 1965 Service Contract Act and 1931 Davis-Bacon Act requires the Labor Department to analyze regional salaries and benefits in certain sectors and then set the prevailing wage contractors must pay their employees.

The High Road program under consideration by the administration however, would take those requirements a step further. According to news reports, contractors who pay hourly workers a living wage -- providing health insurance, offering employer-funded retirement plans and paying sick leave -- would be given a preference.

Contractors who repeatedly have violated labor and employment laws could be barred from competing for contracts. A compliance office at Labor would be responsible for examining the labor records of federal contractors and scoring contract bidders based on that criteria, according to several news reports.

The proposal was criticized on Thursday during a hearing of Homeland Security and Governmental Affairs Subcommittee on Contracting Oversight.

Questioned about the plan by Sen. Bob Bennett, R-Utah, the committee's ranking member and a co-signer on the letter to Orszag, several contracting professors and attorneys said the plan would raise the price of contracting but do nothing to increase efficiencies in the acquisition system.

"All of these social programs, whether they are pro-union or something else … they increase the barrier to entry, increase the complexity of the process and add to the work that the acquisition workforce actually needs to do," said Steven Schooner, co-director of the Government Procurement Law Program at The George Washington University. "So in the long run they are not intended to maximize the ability of the public procurement system to be efficient and serve its ultimate purpose."

Schooner suggested that the administration has spent a "disproportionate amount of energy … focused on using the public procurement process to benefit union members and special interests." He added that "redistribution of wealth is the wrong path to take in public procurement."

Joshua Schwartz, the other co-director of GW's government procurement law program, told the panel that contracting officers should have the discretion to use factors other than price to evaluate a contract. Schwartz' concern, however, is that contracting under the High Road program would "mandate the way you exercise judgment."

OMB did not respond to a request for comment on the proposal, which has yet to be introduced.

While the plan already has come under fire from Republicans and business interest groups such as the Chamber of Commerce, it does have many fans in the labor sector, including unions.

The American Worker Project at the Center for American Progress, a Washington think tank, has suggested that the program would actually save taxpayers money because those employees would be less likely to use Medicaid and food stamps.

But Republicans fear that the plan could chase many small businesses away from the federal marketplace. "I would expect this would have a chilling effect on small businesses trying to compete for government business," Bennett said.

Panelists at the hearing suggested the added costs associated with increasing salaries and benefits would not be absorbed by the contractor but rather be passed along to the taxpayer in the price of the contract.

In their letter, Republicans suggested that the plan would increase the cost of federal contracts. "The factor could unduly distort the best value proposition and undermine the government's responsibility to act as a good steward of Americans' tax dollars," wrote Bennett, Sens. Susan Collins and Olympia Snowe of Maine, Tom Coburn of Oklahoma and Lindsey Graham of South Carolina.

Schooner agreed with those concerns, and recommended that the government focus all of its energy on best value and customer satisfaction.

"It is simply inconceivable that the government would incentivize contractors to pay its workers more in this economy," he said. "The bottom line is the government should be getting bargains because we have excess capacity in the workplace. The government should be focused on getting the greatest value for its money with everything that it purchases."