Wednesday, October 24, 2012

Update on Compensation Caps

The Senate version of the fiscal year 2013 Defense Authorization Act includes a provision that would cap compensation paid under DoD contracts at the Vice President's salary, $230,700. This represents a significant reduction from the current $763 thousand cap. The House version of the 2013 Defense Authorization Act does not include such a provision and so this difference will need to be resolved in "conference" at some point.

Last week, a consortium of ten public interest , government accountability, research, and labor groups issued a letter addressed to the Chairmen and Ranking Members of the Senate and House Armed Services Committees, urging them to adopt the Senate provision. Here's some of the points they make:

  • It is fiscally irresponsible to allow private contractors to charge escalating and exorbitant rates to the government.
  • Since 1998, the compensation cap has more than doubled, outpacing inflation by 53 percent.
  • Private firms are free to pay their employees whatever they deem that they are worth, but the taxpayer should not have to pay exorbitant amounts.
  • Capping salaries at $200 thousand would save the Government $5 billion per year.
  • Contrary to what some contractors claim, compensation levels over $230 thousand are not required to find and retain a talented workforce.
  • "Its grossly unfair to expect working people to pay for the inflated salaries for defense contractor employees.

Our concern here is one of practicality. Since this provision applies only to DoD contracts, Government contractors with a mix of DoD and other agency contracts (e.g. NASA, Dept of Energy, etc) will need a two-tiered direct and indirect rate structure, one for DoD contracts and one for everyone else. Well, the Government wants to create jobs and this will help.

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