Reps. Tonko and Speier Seek to End Ever-Increasing Taxpayer-Funded Contractor Compensation

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July 19, 2012

Today, the House takes up the Defense Appropriations bill. There has been much talk about DoD spending cuts and the impact of sequestration (but maybe the sky isn't falling). One way to realize savings would be to reduce the federal government's reimbursement of contractor compensation. Senators Boxer (D-Calif.) and Grassley (R-Iowa) and Representative Tonko (D-N.Y.) have been leading the charge to reduce the compensation cap for years.

The Senate took up the proposal in the National Defense Authorization Act of 2013 (NDAA), which has yet to be passed and signed by the president. After expanding the scope of coverage of the cap from the top five executives to all contractor employees (with a few occupational exceptions) last year, the Senate is now proposing to lower the cap from $763,029 to $230,700 (S. 3254, Sec. 842).

The Tonko-Speier amendment  reaffirms the Senate’s action, proposing to reduce the compensation cap for contractors and subcontractors to $230,700.

For years, the Project On Government Oversight has supported congressional efforts to reduce the burden of federal contracting costs, including contractor compensation, on taxpayers. Compensation based on financial performance is more appropriately paid from corporate earnings or equity rather than as a base contract cost passed onto taxpayers.

The possible savings are in the billions.

Army testimony before the Senate Homeland Security and Governmental Affairs Committee, Contracting Oversight Subcommittee estimated that $6 billion would be saved by the Army alone if the cap was reduced to $400,000. When asked about a reduction of the cap to $200,000, the Army official repliedthat the “President’s proposal to cap contractor pay at a level equal to the top of the Federal Executive Schedule is worth considering as part of an holistic look at how spending on contract services can be reduced across the Department of Defense.” However, he warned that “[a]ny significant reduction in the cap on contractor pay needs to take into account the possible second- and third-order effects of such a decision.”

There is no doubt the contractor compensation has dramatically increased through the years and requires readjusting. Supporting the Tonko-Speier amendment to H.R. 5856 and Sec. 842 in the Senate’s version of the 2013 NDAA are a step forward in reducing one financial burden on taxpayers that is not in step with current efforts to make the government more cost efficient.

Below is a video of Rep. Tonko on the House floor talking about a pay freeze for feds and a $70K raise for contractors, and the need to reign in taxpayer reimbursement for contractor compensation.

Topics: Contract Oversight

Related Content: Budget, Contractor Compensation

Authors: Scott H. Amey, J.D.

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