Senate-passed Defense bill would cap contractor pay

The 2012 Defense authorization bill, which the Senate passed Thursday night in a 93-7 vote, includes an amendment to cap the amount that defense contractors can be reimbursed for any employee's salary at $400,000.

Such a cap is opposed by many in the contractor community, and the Obama administration has favored a lower cap that would apply only to senior executives.

The amendment, approved by voice vote, was offered by Sens. Barbara Boxer, D-Calif.; Chuck Grassley, R-Iowa; and Jay Rockefeller, D-W.Va.

Under current law, a contractor can charge taxpayers $693,951 for the salaries of each of its five highest-paid employees, based on a formula adopted in the late 1990s.

"Taxpayers should not be on the hook for exorbitant government contractor salaries," Boxer said in a statement. "This amendment ensures that no defense contractor will make more in taxpayer funds than the president of the United States."

Grassley said, "We can't afford to waste increasingly limited defense dollars. This amendment goes after an unnecessary expenditure by containing runaway spending in a type of contract used extensively by the Department of Defense."

The House-passed version of the Defense bill would extend the current cap of slightly less than $700,000 to all employees.

The Boxer amendment is opposed by an alliance of contractors called the Acquisition Reform Working Group. In a Nov. 29 letter, the group warned it "could force companies to reduce its employees' compensation; in turn, these shrinking salaries will make the defense sector less attractive to top talent, which could then negatively impact DoD missions."

The harm to defense companies from lowering the cap, the contractors continued, "would be further compounded by broadening the scope of application to cover all federal contractor employees; highly skilled innovators and technology experts would likely focus their skill sets on the commercial market, thus eliminating the government's ability to develop effective critical mission solutions."

Debate on the Senate floor was tinged by the week's broader political dispute over whether to raise taxes on the wealthy to pay for an extension of a "holiday" on Social Security taxes.

Majority Leader Harry Reid, D-Nev., said, "while targeting the middle class, Republicans proposed to do nothing to cut back on excessive subsidies for many large corporations that benefit from government contracts." Reid said the contractors, who now total 5 million, "caught fire during the Republican control of the presidency."

Minority Leader Mitch McConnell, R-Ky., said his party's proposal to pay for the Social Security holiday by extending the freeze on federal pay, "is a much smarter approach to extending the temporary payroll tax cut than the one proposed by Democrats involving permanent tax hikes on job creators."