A collection of federal unions and watchdogs groups wrote to the House and Senate Armed Services Committee urging support for a law capping taxpayer-funded contracting compensation costs at $230,700. That is the maximum salary earned by the highest-paid federal employees.

Contractor salaries are now capped at $763,029, per a 1998 law that sets annual compensation benchmarks.

“With budget cuts and sequestration looming, it is fiscally irresponsible to allow private contractors to charge escalating and exorbitant rates to the government,” the groups’ letter stated. Under the current formula, the increase in compensation costs paid to contractors has grown 53 percent faster than inflation, the groups said.

Limiting taxpayer-funded compensation to about $230,000 would save at least $5 billion a year, according to the letter. Signers included the American Federal of Government Employees, the National Treasury Employees Union and the Project on Government Oversight.

“Private firms are of course free to pay their employees whatever they deem that they are worth,” the letter stated, but the amounts charged to the government as allowable costs should be lowered, the groups said.

Chairman of the Senate Armed Services Committee, Carl Levin (D-Mich), has included a similar provision in the version of the 2013 Defense Authorization Act he introduced last summer.

Industry says pay cap would make contractors uncompetitive

Contractors have long maintained that their compensation rates track with salaries in the broader private sector and that limiting them would make it more difficult to attract talent.

Trey Hodgkins, the senior vice president of the IT industry group TechAmerica, said he supports maintaining the current compensation formula.

“TechAmerica represents a wide variety of companies delivering sophisticated technology solutions across a wide variety of missions in the federal government,” he said in a emailed statement. “Government contractor compensation for these skills and services must be able to compete with the demand and compensation for the same pool of talent in the private sector.”

But in their letter, the groups said they didn’t believe the $230,000 limit would make it more difficult to keep a talented workforce, pointing to David Wineland, a National Institute of Standards and Technology employee, who recently won a Nobel Prize in physics.

The letter also pointed out the current compensation rate allows contracting executives to earn more than the President ($400,000), the defense secretary ($200,000) and members of the Senate ($174,000).

In a statement provided to Federal News Radio, the Professional Services Council, which represents many government contractors, said pay-cap proposals would only serve to drive away contractors doing vital work.

“The reality is that this proposed limitation would deprive the government of access to critical skills, such as those currently in high demand to defend government networks from cyber intrusions,” according to PSC’s statement. “Existing limitations on compensation for federal employees are already hindering the government’s ability to recruit and retain highly skilled professionals.”

This is at least the second year in a row that a contractor pay cap has been included in the Senate’s defense policy bill. Last year, an amendment sponsored by Sens. Barbara Boxer (D-Calif.) and Chuck Grassley (R-Kan.) would have capped salaries at $400,000. However, the House stripped that measure out in the final version of the bill that passed.

In March, Boxer and Grassley reintroduced their pay cap as a stand-alone measure, but it remains stuck in committee.

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