Wednesday, November 21, 2012

Proposed Caps on Compensation - Update

We've been bringing you periodic updates on the various attempts to lower the caps on compensation that the Government will reimburse under its contracts. The last update was about a month ago. There is nothing new on the legislative front since our last update but there is continued pressure (lobbying?) by various groups encouraging Congress to cap compensation at lower than current levels.

On November 13th, the same consortium of public interest, government accountability, research, and labor groups that we wrote about in our last update (plus one additional group, bringing the number to eleven), issued a similar letter to the Senate and House Financial Services Committees urging them to lower the compensation cap to $400 thousand for non-defense contracts. As you recall, the previous letter addressed a cap of $230,700 for defense contracts. These two caps are currently included in the Senate versions of the Fiscal Year 2013 Financial Services Appropriations Bill and the National Defense Authorization Act of 2013, respectively. Except for a bit of tweaking to specify the respective bills, the letters are identical.

These caps, if implemented, will likely affect many contractors, especially the $230,700 cap for defense contracts. There are many engineering, IT, and medical jobs that already exceed that amount, no matter what benchmark you use. The prospect of having dual caps, one for Defense and one for non-Defense will certainly complicate matters as well. It will affect both direct labor rates and indirect expense rates.

Some say that these bills do not limit what contractors can pay their employees. They only limit the amount of the reimbursement that contractors can receive from the Government. While true, the amount of unreimbursed salaries would have to be paid for with profits and we wonder whether contractors profits can absorb a significant amount of unallowable compensation.

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