A new report out from the government’s oversight agency finds that millions of dollars could be saved if federal contractors — particularly at the Pentagon — made only as much as the President of the United States.
The report — invitingly titled “Information on the Impact of Reducing the Cap on Employee Compensation Costs” — was mandated as part of the National Defense Authorization Act for the current fiscal year, to find what sort of savings were to be had if the cap on the amount that defense contractors could charge the federal government was lowered. At present, the cap on the amount of compensation that contracting firms can charge the federal government per employee stands at a mind-boggling $763,029 for 2011 and 2012, up from $693,951 in 2010.
Specifically, the act charged the Government Accountability Office (GAO) with seeing the effect on moving the cap back downward, setting the level at the annual salary of the President or Vice-President. Under law, President Obama currently makes $400,000 per year — the highest amount in the federal government — and Vice-President Joe Biden is paid a salary of $230,700 annually. According to their report, the GAO found that contractors “identified over $180 million per year in compensation costs that would have exceeded a cap set at the President’s salary, and at least $440 million per year if set at the Vice President’s salary.”
The amount that could be saved if the cap were to be lowered could possibly be even higher. The GAO came to their conclusions through data requests and interviews with a random sample of 10 large-tier, 10 mid-tier, and 10 small-tier contractors, of which 27 replied. Strikingly, the three largest of the companies that the GAO polled did not provide the data that was requested, though the agency noted that it was mostly employees at large-tier companies whose salaries would be affected by lowering the cap. Most of those who outpaced the cap were at the executive level at the companies surveyed.
Proposals to lower the cap have the support of the Office of Management and Budget (OMB), who noted to GAO that nothing would prevent these companies from paying above the cap should it be lowered. These costs, however, would then be the responsibility of the firm itself instead of the government. To achieve this, OMB has “sent a legislative proposal to Congress that would abolish the current formula for calculating the cap, tie the level of the cap instead to the President’s salary, and apply it to all employees for both defense and civilian cost reimbursement contracts.” OMB also supports the idea of an exception for scientists and engineers to help obtain the necessary talent in those fields, though few individuals whose salary exceeds the President’s currently serve in those roles.
Despite that White House backing, the Pentagon remains wary of any cap proposal. More research is required to determine the full effects of such a move, the Pentagon argues, as the GAO’s sample of study is relatively small. “While the Department fully supports the principle of paying only reasonable compensation costs, we must avoid a policy that serves to drive away the very talent that we need to maintain our strategic advantage and national industrial base,” warned Under Secretary of Defense for Acquisition, Technology and Logistics Frank Kendall in a letter to the GAO. Industry representatives agreed, telling the GAO that a lowered-cap may reduce the ability to compete for talent and could result in these companies shifting focus from government to commercial work.
That the government currently overpays defense and intelligence contractors is no secret. The Office of the Director of National Intelligence recently reported that it pays contractors 1.66 times as much as a federal employee for the same work. Likewise, a 2007 Senate report found that the average contractor in the intelligence community made almost double what a similar federal worker would. This spending comes in the face of mandated budget cuts across the Pentagon which, despite the negative effects they are having on national security, exempt currently signed contracts from their effects.