Watchdog asked to study contractor salaries, benefits

Request comes as administration considers policy that could favor contractors offering higher pay and benefits.

Two Democratic lawmakers have asked the Government Accountability Office to study the cost to taxpayers of contracting with companies that pay their employees low salaries and offer few benefits, Government Executive has learned.

In a Feb. 26 letter to acting Comptroller General Gene L. Dodaro, Reps. Robert Andrews, D-N.J., and Patrick Murphy, D-Pa., asked GAO to study whether certain "unscrupulous" firms with documented labor, safety and health or wage violations are receiving federal contracts and to note the value of those awards. The lawmakers also want to know if any of those companies fail to offer their workers health insurance.

"In other words, we'd like to quantify the taxpayer burden associated with a certain company if they pay so little that workers and their families qualify for federal safety-net benefits," the members wrote. They also requested a data match between contractors that have labor violations and those with cost overruns.

The Obama administration's as-yet-unannounced High Road contracting plan, which Vice President Joe Biden's Middle-Class Task Force has been considering since last summer, would provide contractors that pay their employees higher wages and benefits a leg up when bidding for contracts. It has the support of several advocacy groups and labor unions.

"The task force is looking at ways to improve the procurement process by making it less likely that irresponsible businesses will get federal contracts and by allowing procurement officers to consider job quality when awarding contracts" without raising costs, the group said in its February annual report.

An Obama administration official told Government Executive this week that the White House has not made any decisions on the High Road policy. But some lawmakers expect the plan to be implemented.

"The administration has indicated that they are going to act on this," said Kaelan Richards, spokeswoman for Rep. Rosa DeLauro, D-Conn. "But if not, the congresswoman would certainly consider introducing legislation to improve federal contracting and to ensure that we reward employers who create good jobs and protect taxpayers from waste and abuse."

In November 2009, DeLauro got seven House members to co-sign a letter urging President Obama to support labor-friendly contractors.

"High Road contractors -- those who are willing to pay decent pay and benefits -- are often discouraged from competing for government contracts if they must engage in a 'race to the bottom' in order to win the bidding process," the letter stated.

Several acquisition specialists have panned the High Road initiative, suggesting it will make the procurement system more costly and inefficient. Senate Republicans and business groups, including the U.S. Chamber of Commerce, said the policy would favor unionized companies and block small businesses from entering the marketplace.

"Ultimately, these small businesses could choose not to compete for federal contracts, undermining the diversity of the federal contracting base and lessening competitive pressure on larger federal contractors," five GOP senators led by Susan Collins of Maine told Office of Management and Budget Director Peter R. Orszag in a February letter. Despite growing opposition, some observers said momentum could shift if GAO is able to put a price tag on contracting with firms that fail to pay their employees a "living wage" or to provide health or retirement benefits. At a minimum, the report could provide political cover to the administration if it chooses to move forward with its plans, some suggest.

GAO has yet to begin its study and is working with Andrews and Murphy on "how best to meet their information needs," agency spokeswoman Susan Becker said. The review could face numerous hurdles, because contractors are under no legal obligation to provide GAO with details on employee salaries and benefits, sources said.

The issue was highlighted last month in the final report of the House Armed Services Committee's Defense Acquisition Reform Panel, chaired by Andrews.

"The panel received testimony indicating that certain federal contractors have histories of employment law violations and of low pay and poor benefits," the report said. "The testimony indicated that these contractors may gain an unfair competitive advantage over responsible contractors and ultimately cost more to the government through their employees' usage of government benefit programs."

Andrews and Murphy declined to discuss their request and whether it is connected to the High Road policy.

The panel's report called on the Pentagon to "carefully examine GAO's recommendations, if any, as a result of this review and determine whether the department should take actions to limit such practices."

A footnote in the report indicates the Sept. 17, 2009, panel testimony of David Madland, director of the American Worker Project at the left-leaning Center for American Progress, influenced the recommendation.

Madland has been the most vocal public advocate for the High Road policy, arguing that if contractors paid their employees better and provided wider benefits, those workers would be less likely to use public assistance.

The Economic Policy Institute, a progressive think tank, has estimated that of 2 million contract employees in 2006, nearly 20 percent earned less than $9.91 per hour, putting them below the poverty threshold. Forty percent earned less than a livable wage, which varies by location, but is defined as the pay rate necessary to meet minimum standards of living.

Skeptics say such analysis can be purely speculative. EPI's study, for example, was based on employment data for nongovernmental workers, which was then applied to contractor staff. For example, the data assumed that a private sector janitor would earn the same salary as a janitor working on a government contract. The government does not collect data on the salaries of its contract workforce.

"As with earlier contracting reform initiatives announced by the president, a top priority is to ensure that the federal government keeps our contracting costs as low as possible, consistent with the delivery of reliable, high-quality goods and services," said OMB spokesman Thomas Gavin. "We will continue to examine whether that priority can be advanced by further policy changes, and will be sure to explain any new decisions if and when they come about."

Tomorrow, Government Executive will explore how newly uncovered documents shed light on how the High Road policy plan might work.