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FCW : July 30, 2013
only to cost-reimbursement contracts. The cap is based on the salaries of top corporate executives. Over the years, Congress has repeatedly tried to rein in the payments as the U.S. economy has slowed and CEO compensation has sky- rocketed. In 2011 and 2012, Sen. Charles Grassley (R-Iowa), Sen. Barbara Boxer (D-Calif.) and other lawmakers unsuc- cessfully tried to reduce the cap. More recently, bills have attempted to make the cap equal the salary of the president ($400,000) or the vice presi- dent ($230,700). This time around, private- and public-sector economic conditions could force lasting change. In the past decade or so, the gap between executive and regular employ- ee pay at contracting companies has widened into a chasm. According to an AFL-CIO study in April, chief executives of the nation's largest companies earned an average of $12.3 million in total pay last year --- 354 times more than a typi- cal American worker. Opponents of a higher cap on contractor reimbursement say those executive pay levels are pro- hibitive for taxpayers. This year, federal agencies have been thumped by sequestration cuts, with some furloughing employees to save money and all looking to substantially reduce costs and increase ef ciency. "The trouble began when the reim- bursement level was tied to executive compensation," said Scott Amey, general July 30, 2013 FCW.COM 25 Agencies have reimbursed contractors for their executive salaries in one form or another since a 1997 law enabled it --- a practice that seems reasonable to some and objectionable to others. Although there is a debate over whether government should do it at all, perhaps the more pressing issue is at what level the reimbursements should be capped. "We're near the boiling point," said Trey Hodgkins, senior vice president of the global public sector at TechAmerica. The cap, based on a formula devised by the Clinton administration's Of ce of Federal Procurement Policy, was $693,000 in 2010 and rose to $763,029 in 2011. According to OFPP Adminis- trator Joe Jordan, the cap will next be bumped to $950,000 if no legislative action is taken. The current controversy over federal contractor reimbursement levels has its roots in the Internet-fueled economy of the late 1990s. At the time, now-retired Sen. Joe Lieberman (I-Conn.) and others in government were concerned that top executive talent at private companies immersed in the white-hot, high-tech- driven environment of the time would eschew government contracts in favor of more lucrative private-sector work. The idea was to sweeten the pot for contractors by adding funds to cover some or all of their executive salaries. However, the practice applies counsel at the Project on Government Oversight. Amey and others who are in favor of limiting reimbursement contend that the payments are incongruous with a government that is tightening its belt and a stumbling national economy. "The payments place a huge burden on taxpayers. We need reform," Amey said. "Why does CEO pay apply to a defense contractor when there are hir- ing freezes and pay freezes at govern- ment agencies?" Amey said that, ideally, he'd like a new reimbursement cap set at $200,000, with individual waivers led if more money is needed to keep a top-level executive on the job. Groups that represent federal con- tractors argue that the situation is more nuanced. They say they understand the pressure to cut costs but also see indus- try continually drawing valuable execu- tives away from government contract work. They favor realistic compensation to keep talented contractor executives engaged, especially in some critical markets, but say they are open to other solutions. However, if reimbursement is unre- alistically limited and executives seek more lucrative private-sector work, Hodgkins said, "we stand to lose skills and erode our ability to retain top per- formers in key areas like cybersecurity and software design." One way to address ballooning exec- Multiple proposals to reshape contrac- tor reimbursement payments have been introduced in Congress in the past few months. However, legislation to reform the cap stalled last year. In the past month, Of ce of Federal Procurement Policy Administrator Joe Jordan recommended tying the cap to the president s $400,000 annual salary and extending it beyond government contractors. In June, the Commonsense Contrac- tor Compensation Act was introduced by Rep. Paul Tonko (D-N.Y.) and Sens. Barbara Boxer (D-Calif.), Charles Grass- ley (R-Iowa) and Joe Manchin (D-W. Va.). The legislation would cap the salary reimbursement for all government con- tractors at the vice president s $230,700 salary and extend the cap to all defense and civilian contractor employees. --- Mark Rockwell
July 15, 2013
August 15, 2013