OFPP's proposed increase in contractor salary cap upsets all

Thursday - 12/5/2013, 4:27am EST

The Office of Federal Procurement Policy made nobody happy Wednesday when it raised the cap executive pay for contractors by $190,000 for fiscal 2012.

In a Federal Register notice, OFPP Administrator Joe Jordan said the new benchmark for allowable costs would be $952,308, up from $763,029 in 2011.

What's unclear is why OFPP is announcing the cap for 2012 when fiscal 2014 started Oct. 1.

OFPP stated in the notice the cap would be in place for all contracts awarded after Jan. 1, 2012 and for subsequent fiscal years unless it's revised by OFPP.

"Because Congress has not changed or replaced the statutory formula for setting the cap, the administration is compelled by statue to raise the cap for another year in accordance with that statutory formula," OFPP stated in the notice. "In other words, the administration has no flexibility to depart from the statutory requirement that the cap be adjusted annually based on the application of the statutorily-mandated formula."


"Christmas has come early for federal contractor employees, yet the government's own employees are looking at stockings full of coal."

— AFGE National President J. David Cox


The move angered both federal employee unions and associations representing contractors.

The American Federation of Government Employees called the increase "an outrage."

"Christmas has come early for federal contractor employees, yet the government's own employees are looking at stockings full of coal," said AFGE National President J. David Cox in a release.

AFGE said the cap has increased by 55 percent over the past four years with the latest change and has nearly quadrupled since the mid-1990s.

The Professional Services Council, which represents federal contractors, said the timing of the announcement is "curious" as both the House and Senate Defense Authorization bills have provisions to change how OFPP would calculate the cap in the future.

"OFPP has not previously met its obligation to automatically and annually update the benchmark prior to the start of a fiscal year and thus we are confused as to why they felt the need to publish this version now as important discussions regarding revisions are underway in Congress," said PSC President and CEO Stan Soloway in a release.

Congress is considering OFPP's proposal to change the statutory formula.

OFPP added a provision to the Defense authorization bill to limit reimbursement to contractors for executive salaries to $400,000.

In May, Jordan wrote in a blog that the amount that the government should reimburse contractors should be $400,000 — same as the President's salary.

Both of these proposals come after the Obama administration initially wanted to lower the cap to $200,000 in 2012.

Congress has punted on lowering the total allowable costs for contractors before. They declined last session to lower the reimbursement cap from $763,000 annually. The Senate passed a provision to lower the rate to $230,700, but the House-version of the Defense authorization bill didn't include the cap, and neither did the final law.

AFGE continues to push for a lower cap, tied to the Vice President's salary of $230,700.

Cox said if the government caps contractor salary at that rate, the Defense Department alone could save more than $400 million a year.

Soloway said tying the compensation cap to the President's salary is flawed and "intellectually inconsistent."

"It is regrettable that OFPP has refused PSC's long-standing request to discuss options for updating the formula and the benchmark levels to better account for current comparisons between the government contractor sector and the commercial sector," Soloway said. "While PSC has been involved in and supportive of House and Senate efforts to rationalize this process, we have deep concerns that some of the alternatives being considered in Congress will significantly affect small and mid- tier firms and jeopardize all contractors' access to critical talent. We know Congress is also concerned about this talent risk because of the large number of exemptions from the cap that are included in several of these proposals. This is not the time to stir the pot with unnecessary actions; it is time for serious conversations."

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