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Contractors Receive Huge Raise on Same Day Income Inequality Discussed

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On the same day that the President spoke eloquently and fervently about the rising income inequality in the United States, the ever-contractor-friendly Office of Federal Procurement Policy (OFPP) in the Office of Management and Budget (OMB) increased the maximum amount of contractor compensation that can be charged to government contracts from a mere $763,029 per employee per year to what OFPP apparently considers a much more reasonable $952,308 per employee per year. This increase primarily affects the employees of the largest government contractors—most notably defense and information technology firms. So taxpayers are now on the hook for paying up to nearly $1 million for every one of these contractor executives or employees every year.

OMB tried to excuse its scheme to enrich the wealthiest contractor executives and employees by including shallow lamentations that on the surface appear to decry the need for such a large increase in allowable compensation (OFPP acted similarly when the cap was raised in 2012). The OFPP notice essentially cries that “Congress makes us do it,” but the truth is, raising the contractor compensation cap is a discretionary act, which OFPP has managed to turn into a nearly annual contractor feeding frenzy—this year it becomes a massive holiday bonus for contractors, all while agencies are being asked to do more with less.

To add a final insult to injury, OFPP made the change retroactive to January 1, 2012, for most firms.

So contractors, enjoy your yearly increase in taxpayer-funded riches, courtesy of OFPP. We can only hope that one day someone in the Administration takes a close look at what goes on in that office, and turns the place into a legitimate public policy shop rather than another lobbying outfit for contractors on the public dole. I guess that will only happen when Congress—the Senate in particular—requires it to do so.

Image by Flickr user FutUndBeidi.

By: Scott H. Amey, J.D.
General Counsel, POGO

scott amey Scott Amey is General Counsel for the Project On Government Oversight. Some of Scott's investigations center on contract oversight, human trafficking, the revolving door, and ethics issues.

Topics: Contract Oversight

Related Content: Sequester, Contractor Accountability, Contractor Compensation, Federal Acquisition, Waste, Wasteful Defense Spending

Authors: Scott H. Amey, J.D.

Submitted by Dfens at: December 15, 2013
If it applies to 100 - 200 employees out of a defense workforce of hundreds of thousands of people, then your headline is misleading. It's not "defense workers" who are effected by this law it is defense executives. How hard is that to figure out?
Submitted by Scott Amey at: December 11, 2013
$487,000 says the Bipartisan Budget Act of 2013: http://budget.house.gov/uploadedfiles/bba2013summary.pdf
Submitted by Scott at: December 10, 2013
It looks like the House and Senate settled smack dab between the House proposal of $763k and the Senate proposal of $487k (http://armedservices.house.gov/index.cfm/press-releases?ContentRecord_id=A71E2FA6-E0E6-463F-BEE1-5F7658456170): Executive Compensation Reform: The NDAA recognizes the White House’s formula for calculating allowable private sector compensation on DOD contracts has become dysfunctional and does little to protect the taxpayer or provide transparency in government contracting. The NDAA rationalizes the cap to $625,000 and does away with the flawed formula. The NDAA allows for the cap to be adjusted based on the Employment Cost Index, which is commonly known and publically available index computed by the Bureau of Labor Statistics. The NDAA rejected calls by some to cap individual industry compensation at the President or Vice President’s salary level, as such a standard represents an arbitrary comparison between compensation and salary and will only serve to drive critical talent from the nation’s defense industrial base.
Submitted by Scott at: December 10, 2013
Defens, GAO-13-566 found that the previous cap applied to 100 to 200 contractor employees based on its limited survey, but that millions would be saved if the cap was reduced. The industry is crying in the wind on this issue. Industry said no arbitrary reductions and let's wait to set the cap until after GAO looked at the issue. Now industry is arguing that, despite those savings, any reduction is arbitrary and any reduction would hinder contractors' access to critical talent (http://www.federalnewsradio.com/517/3518691/OFPPs-proposed-increase-in-contractor-salary-cap-upsets-all). Industry wanted exceptions for scientists and engineers and got them. We waited for the study, the results are in, and an adjustment is needed. The Senate has proposed reducing the cap to base plus inflation adjustments, and that still doesn’t seem good enough. I don't care if the cap applies to 1% or 99%, it needs to be adjusted and the govt needs to stop the “protect the industrial base” policies that are wasting taxpayer money. I agree with you that there are many other ways to save contracting dollars, but this seems like low hanging fruit.
Submitted by Bullet at: December 8, 2013
Giving the higest grade employees the biggest percentage raise is nothing new. It is almost a tradition. About forty years ago I was a Government employee and at that time the higher your pay grade ,the bigger pay increase or bounus.
Submitted by Dfens at: December 8, 2013
Speaking as an employee of a contractor I can assure you this has little to do with my salary, nor does it have any relevance to the salaries of most "employees" of contractors. This compensation cap only effects the top 1% of contractor "employees", the CEO and a few of the CEO's main minions. With or without this increase most of these people will continue to have 100% of their salaries paid by the US taxpayer. It is merely a matter of whether or not their salary has any negative effect on the profit percentage that is actually at stake with this salary cap legislation.
Submitted by CMDR at: December 8, 2013
From November 1st to November 30th, the U.S. Department of Defense (?) awarded more than 23 BILLION dollars to contractors. Most of us never even heard of some iof those contractors. Just where does most of this money end up? I'll give you one guess. If your answer was "The members of Congress" -- you'd be absolutely right!
Submitted by grandma2many at: December 7, 2013
This is outrageous. Who keeps this money as no ordinary employee makes even one-eighth of this salary! Why does this not need Congressional approval?
Submitted by ivanczar at: December 7, 2013
Good lord , the War Racketeers keep raking it in.
Submitted by Mack at: December 7, 2013
Why should we be surprised , the government is SO screwed up.

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