White House wants to scrap law allowing costly contractor salaries

Thursday - 5/30/2013, 6:02pm EDT

The Obama administration has called on Congress to cap government-reimbursed contractor compensation at $400,000 — the same salary drawn by the President — a move that the head of the Office of Federal Procurement Policy said would save hundreds of millions of dollars.

Joe Jordan, the OFPP administrator, said the White House would send proposed legislation to Congress next week.

"I fervently believe that Congress will heed the urgent call to restore fiscal responsibility before additional taxpayer dollars that could be used to fund critical agency mission work are wasted unnecessarily to pay for costly overhead in the form of excessive contractor compensation," he wrote in a post on the Office of Management and Budget blog.

Under current law, government-reimbursed contractor pay is tied to a formula that mimics the compensation levels of top private-sector CEOs, which has grown by more than 300 percent since 1995, when the law was enacted, Jordan said.

The formula allows top contractor execs to earn as much as $763,000 in taxpayer-funded salaries. That cap is set to go up this year to $950,000.

The White House proposal would repeal the current formula altogether in favor of a hard cap tied to the President's salary level. The move, however, requires congressional approval.

During a call with reporters, Jordan said the proposal would likely affect thousands of contractor employees and would save hundreds of millions of dollars.

The Government Accountability Office, at the request of Congress, is currently studying the issue and will likely have more specifics in a report set to be released this summer, Jordan said.

Proposal contains some exemptions to the cap

The proposal would apply to contractors who are paid by the government under cost-reimbursement contracts, which includes many defense companies. The pay cap would apply to both Defense and civilian contractors and to all of a contractor's employees; the current pay formula only limits the salaries of companies' top five executives.

The proposal does allow for some limited exemptions, however. Agencies can deviate from the pay cap if they determine that additional payment is needed to ensure access to specialized skills, according to OFPP.

But industry groups have criticized such pay-cap proposals in the past, arguing they make the defense sector less attractive to potential recruits.

"By arbitrarily capping the total compensation, even while allowing individual exemptions that will be process heavy and time consuming, the government could well impact the ability of companies to access the very talent they need to best serve their government customer," said Stan Soloway, president and CEO of the Professional Services Council, in a statement provided to Federal News Radio. "In other words, its tantamount to cutting off your nose to spite your face."

This is at least the third time the White House has called on Congress to change contractor compensation limits. Last January, President Barack Obama proposed lowering the cap to $200,000.

The current pay cap proposal has already been circulating on Capitol Hill as a provision in the 2014 Defense Authorization Act, as Federal News Radio reported earlier this week. Jordan said OFPP provided "technical assistance" on the authorization bill proposal and that the issue is appropriate for all of Congress to take up.

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