Cap Fight! Debate Continues Over Contractor Compensation

This week, the House Armed Services Committee (HASC) took up the long-debated issue of setting the contractor compensation benchmark in the FY 2014 National Defense Authorization Act (H.R. 1960). Section 813 includes language to set the cap at its current level of $763,029, but allows for cost adjustments.

That effort was quickly followed by Rep. Bill Shuster (R-Pa.) who agreed with setting the cap at $763,029 and allowing cost adjustments, but Shuster’s amendment, approved by HASC, goes much further. Now H.R. 1960 includes vast exceptions to the cap in addition to language that could gut cost allowability principles and increase federal contract spending rather than reduce it.

Representatives Paul Tonko (D-N.Y.) and Jackie Speier (D-Calif.), seeking to fix this provision, attempted to offer an amendment for a vote by the whole House that would have set the cap at $230,700, which would be the ceiling amount for which federal contractors would be permitted to price or seek reimbursement for employee compensation on federal contracts.

But, in an unexplainable move last evening, the House Rules Committee did not make the Tonko-Speier amendment in order for the third year in a row. This rejection by Rules is completely at odds with the fact that the Shuster amendment was allowed during markup. Members of the House should have an opportunity to debate and vote on the proposal the Senate passed last year. Talk about legislative cheating to ensure one party’s bills and amendments see daylight, while others are prevented from being discussed and voted on.

Tonko and Speier have been fighting for years to reduce the cap. Their amendment would have limited cap exceptions to “scientists, engineers, or other specialists”—which is a huge improvement over the numerous Shuster exceptions. Unlike the proposals that start the cap at $763,029, Tonko and Speier were trying to reduce federal spending and protect taxpayers from exorbitant contractor payrolls. Their effort reaffirmed the Senate’s actions in 2012, proposing to reduce the compensation cap for contractors and subcontractors to $230,700, which was stripped out during the House and Senate conference. Needless to say, contractors can pay their employees whatever they deem appropriate from other revenue streams.

Reform of the contractor compensation cap is sorely needed. The current formula, enacted in 1997, is based on corporate senior executive compensation packages and has resulted in the cap more than doubling since 1998. The cap increased nearly $70,000 last year, reaching $763,029. Without reform, the FY 2012 cap will exceed $950,000. Yes, nearly $1 million!

The White House is still pushing for a $400,000 compensation cap (p. 7), which is where we might end up if Congress decides to meet in the middle—but that will only happen if the Senate (Sec. 818 sets the cap at $400,000) saves the day and Congress truly learns how the Shuster amendment will result in nothing more than a bailout for federal contractors.

Unfortunately, any hope for a $230,000 cap is fading fast. We don’t yet know exactly what happened during the Senate NDAA markup because it was closed to the public and the amendments have not been shared, but we have heard from a staffer that Senator Manchin’s (D-W.Va.) amendment to lower the cap was defeated.

Update: The Senate Armed Services Committee markup sets the contractor compensation cap at “$487,000, which is the original cap adjusted for inflation, and ties future adjustments to changes in the Employment Cost Index for all workers, as calculated by the Bureau of Labor and Statistics.”