GAO Report May Be Scissors Needed to Cut Compensation Cap

June 24, 2013

Despite tasting defeat a few weeks ago, Representatives Paul Tonko (D-N.Y.) and Jackie Speier (D-Calif.) are not giving up on their efforts to reduce the taxpayers’ burden to pay contractor compensation. That cap doesn’t limit how much contractors compensate their employees, it only limits how much of that compensation the taxpayers have to pay. After receiving the Government Accountability Office’s (GAO) contractor compensation cap report last week, Representatives Tonko and Speier are more determined than ever to reduce the cap and save the government billions. They introduced H.R. 2444, a stand-alone bill to “implement common sense controls on the taxpayer-funded salaries of government contractors by limiting reimbursement for excessive compensation.”

The GAO found that taxpayers could save approximately $180 million to $440 million each year by reducing the contractor compensation cap to the salary level of the President or Vice-president, respectively. Those savings, however, are only the tip of the iceberg, as GAO only looked at a small sampling of contractors. When applied to all contractors, savings could approach $5 billion annually. Additionally, GAO didn’t consider the impact on “forward pricing” of fixed-price contracts, which one POGO source stated “probably doubles any savings estimate.” Our colleagues at the Center for Effective Government have been out front on the fixed-price issue stating that “whenever Federal Acquisition Regulation cost principles apply to the pricing of a contract [i.e. when cost analysis is used pursuant to FAR 31.102], the caps should apply.” Unfortunately, contractors and some government officials seem to want to ignore that fact.

The Tonko-Speier bill is the companion bill to S. 1192, which is co-sponsored by Senators Barbara Boxer (D-Calif.), Chuck Grassley (R-Iowa), and Joe Manchin (D-W.V.). Both commonsense bills have our strong support.

Image from the Government Accountability Office.

Topics: Contract Oversight

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

Authors: Scott H. Amey, J.D.

Submitted by govconmaven at: June 26, 2013

To Doug Brooks: I am not sure you understand the purpose of the FAR cost principles. The cost principles are used, inter alia, for the purposes of establishing reasonable reimbursement of contractors after award of affected contracts. As such, they typically apply after award by the government of flexibly-priced contracts, such as cost-reimbursement contracts. These contracts are never awarded on the basis of price because they have no price, only a ceiling amount, i.e., a limitation of cost or funds clause. Accordingly, your entire premise is misplaced. As to application of the cost principles to fixed-price contracts, they apply for pricing purposes, in accordance with FAR 31.102, whenever cost analysis is used to determine a fair and reasonable price. Thus, for fixed-price contracts, the cost principles would be applied by the government negotiator in establishing the final price, but that price would then be “set” and the contractor would perform and administer the contract as it would normally perform any other type of fixed-price contract. May I suggest that everyone commenting on this subject first review FAR Parts 15 and 31 before opining?

Submitted by The Price isn't Right at: June 26, 2013

I want to see the data on lowest price award too. Solicitations often state that "non-price factors are significantly more important than price."

Submitted by Scott Amey at: June 25, 2013

Doug, the GAO report documents real savings and we should ignore those. I would love to see your data on the 90% of accepted bids are the lowest price. From my end of things we have so many sole source contracts, cost-related bid protests, and best value policies, that the number of lowest-price awards is way below that figure. And the Senate is doing its best to save taxpayer dollars -- Senator Manchin worked the contractor comp cap into the Immigration bill, which received bipartisan support for reducing the cap to $230,700. http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=113&session=1&vote=00155 http://www.manchin.senate.gov/public/index.cfm/press-releases?ID=d6b8e1d5-9454-469c-8f8c-ff0f1574cf5c

Submitted by SuBee at: June 24, 2013

Executive pay should be contained. However, this is but a small drop in the bucket. Although the government seeks low bids, that does not address the issue of the rampant bid-rigging of private contractors. It also does not address issues such as the cost-effectiveness of the contractor system itself. Surely, there are many areas where the government could forgo private contracting and take on the responsibilities of overseeing the institution and development of some programs. As it stands now, we are seeing corporatism run amok, particularly in military and security areas. It is a long-standing belief that a private company will perform much better than a government-run program. However, this has not been born by the facts when we look at the hefty sums paid to these contractors, who frequently use foreign laborors at criminal wages and can side-step our American legal system. We could instead be thoughtful about developing our own system that would enlist the presence of our own American citizens to accomplish the labor needed. The doling out of taxpayer monies to private firms seems like a definite bypass to our citizens, who are at times forced to bear the burden of these contractors' profit-seeking to the extent of not only funding their greed, but of becoming the unaware partners in many human injustices. It seems our grand gesture to American capitalism has stopped our oversight of the privatization of services to the people.

Submitted by Doug Brooks at: June 24, 2013

If the government is looking for lowest-price bids (which is true 90% of the time), should it not be looking for lowest price, regardless of what the contractor pays its executives? Or is it better to pay more for the same product?

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