Fighting waste and abuse in defense contractor pay

Politicians love to complain about “waste, fraud and abuse,” and to promise to root it out. But few of them ever actually take the opportunity to attack actual waste or abuse (as opposed to making fun of scientific research they don’t understand or bike path construction projects they disagree with). But soon, in the lame duck session of Congress that will begin after the election, members of Congress will have a chance to vote against actual waste and abuse, or—if they’re so inclined—to allow it to continue, at great cost to the taxpaying public. Thanks to an amendment to the Department of Defense authorization bill introduced by Sen. Joe Manchin of West Virginia, Congress has an opportunity to put an end to an egregious practice of self-dealing and self-aggrandizement by federal defense contractors that costs the government billions of dollars a year.

Top federal contract employees are treated very differently (and much better) than equivalent employees on the federal civil service payroll. Current law permits federal contractors to charge the government up to $763,029 a year for their employees, while even federal cabinet secretaries are paid no more than $200,000 a year, and the president is paid only $400,000 a year.

Manchin’s amendment would lower the cap on maximum allowable compensation paid by government funds to all DoD contract employees from $763,029 to $230,700. This is a matter of both fiscal responsibility and fairness. With budget cuts and sequestration looming, it is fiscally irresponsible to allow private contractors to charge escalating and exorbitant rates to the government.  

Knowing that the money will come out of the taxpayers’ pockets, rather than corporate profits, contractors have been raising their executives’ salaries at a dizzying pace, and Congress has let them do it. Since 1998, the compensation cap on government contracts has more than doubled, far outpacing inflation. Defense contractors received permission for another 10 percent increase in maximum employee compensation in April 2012, while military personnel—the men and women actually risking their lives in defense of the nation—received a pay increase of less than 2 percent and the pay of other federal employees was frozen. Private firms may pay their employees whatever they choose, but not at taxpayer expense.

Capping allowable reimbursement of compensation at $200,000 per employee would result in savings of at least $5 billion a year1 just in Department of the Army contracts, almost 10 percent of the entire $55 billion defense budget cut required in 2013 by the Budget Control Act.  A senior Army official testified the savings would be substantially higher.2

Compensation greater than $230,000 a year is not required to find and retain a talented workforce. David Wineland, an employee of the National Institute of Standards and Technology (NIST), just won the Nobel Prize for physics for his work to improve atomic clocks. According to the Partnership for Public Service, over the past century, dozens of federal employees have received the Nobel Prize for innovation and ingenuity, and all of them earned less than $200,000 a year. In any event, contractors are not prohibited from paying their employees whatever they like out of their companies’ profits; section 842 merely limits the amount that can be priced or reimbursed by taxpayers.

The Secretary of Defense earns $200,000 to manage a military workforce of 1.4 million and a civilian workforce of 771,000 personnel. U.S. Senators are paid $174,000 a year. An enlisted soldier’s starting pay is less than $20,000 a year. And the average salary of American workers is less than $43,000 a year. It is grossly unfair to expect working people to pay for the inflated salaries for defense contractor employees.

Let’s hope that Manchin is successful and the final version of the National Defense Authorization Act of 2013 includes a significant reduction in maximum allowable compensation.


1. 98 Fed. Contracts Rep. 320, September 10, 2012.

2. Jay Aronowitz, Deputy Assistant Secretary of the Army (Force Management, Manpower and Resources). “Contractors: How Much Are They Costing the Government?” March 29, 2012, p. 3. (Downloaded June 27, 2012)