PSC: Compensation Cap Proposal is Bad Policy and Bad Business

Arlington, Va., January 31, 2012—The Professional Services Council today warned that a White House recommendation to cap contractor reimbursement at $200,000 would impact the government’s and industry’s ability to access critical skills and would have a particularly harsh impact on small businesses.

In response to today’s Office of Management and Budget announcement that it would once again request Congress cap reimbursement at $200,000, rather than at the level dictated by the decade-old statutory formula used to determine a fair and reasonable compensation rate commensurate with the commercial market, PSC Executive Vice President and Counsel Alan Chvotkin said:

While we agree that the formula needs to be revisited, particularly in light of austerity measures elsewhere in government, we believe that arbitrarily and drastically reducing the reimbursement cap will hurt the government’s ability to obtain the right skills due to the immense competition for talent with the commercial marketplace, where compensation levels for such talent are routinely higher, such as for cybersecurity skills.

The formula-based approach ensures that government contractor reimbursement rates are fair and reasonable when compared with the commercial marketplace. To discard that formula and institute an arbitrary cap is bad policy and bad business. At a time when the government needs to access technology and other capabilities that are essential to driving innovation and efficiency, particularly those offered by  small businesses, this recommendation simply makes no sense.

We similarly oppose efforts to arbitrarily freeze or cut federal employees salaries. The government already fails to adequately compensate its employees with significant skills, which has had a detrimental effect on its ability to access talent. As CBO recently reported, the salaries paid for higher end skills in the private sector are 23 percent higher than those paid in government. The problem is not that employees in commercial companies are overpaid; it's that the government has failed to keep pace. Imposing any arbitrary limitations that ignore market realities will have a similar effect on the government’s access to talent.

Congress has already recognized the detrimental impact of the administration’s proposal and instead voted to implement measures to control contract costs by expanding the compensation reimbursement cap to all employees and significantly reducing spending on services contracts. Contractors have also been taking aggressive steps to control their costs and improve their operational efficiencies. These measures should be given time to take hold and should be evaluated before imposing further changes.

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About PSC: PSC is the voice of the government professional and technical services industry. PSC’s nearly 350 member companies represent small, medium, and large businesses that provide federal agencies with services of all kinds, including information technology, engineering, logistics, facilities management, operations and maintenance, consulting, international development, scientific, social, environmental services, and more. Together, the trade association’s members employ hundreds of thousands of Americans in all 50 states. Follow PSC on Twitter @PSCSpeaks and @StanSoloway.