Reducing Contractor Compensation Cap Will Save Hundreds of Millions Annually

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June 19, 2013

Today, the Government Accountability Office (GAO) released a report that documents hundreds of millions of dollars in savings if the contractor compensation cap is reduced from its current level of $763,029. GAO found that, in a random sampling of contractors:

• Reducing the cap to the salaries of the U.S. President or Vice President would have substantially increased the number of employees with compensation above the cap in 2010-2012, and in turn, increased the amount of compensation costs that would have no longer been allowable under federal contracts.
• Across the 27 contractors reviewed, fewer than 200 employees in any one year had compensation costs over the existing cap, but this number would have increased to more than 500 if the cap had been set at the President’s salary, and to more than 3,000 if the cap had been set at the Vice President’s salary.
• With regard to compensation costs that would not have been allowable at the various cap levels in 2010-2012, the 27 contractors reported over $80 million per year in estimated compensation costs in excess of the existing cap level.
• Were the cap set at the President’s salary, this number would have risen to over $180 million, and at the Vice President’s salary, to at least $440 million per year.
• The majority of costs in excess of each cap was reported at the large-tier contractors.
• A reduction of the cap would impact highly paid executives, non-executive managers, or other, non-management employees.
• DOD has not established an exception for scientists and engineers as permitted under recent legislation and has no ongoing efforts to do so. Exceptions could be created if the cap is reduced.
• Government representatives generally supported reducing the cap as a means to help reduce the costs of DOD contracts, whereas industry representatives and most contractors we reviewed emphasized potential negative impacts to reducing the cap.

POGO has been following this issue for years, and recently reported on the ongoing political battle that is taking place in Congress. “If Congress is serious about cutting federal spending,” said Scott Amey, the Project On Government Oversight’s general counsel, “the contractor compensation cap should part of the plan and taxpayers should be relieved of their burden to pay exorbitant contractor payrolls.”

Image from Flickr user Steve Rhode.

Topics: Contract Oversight

Related Content: Competition in Federal Contracting, Contractor Accountability, Cost Accounting Standards, Risky Contract Vehicles, Transparency in Contracting

Authors: Scott H. Amey, J.D.

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