Are Federal Contractors Paid Too Much?

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This topic contains 4 replies, has 3 voices, and was last updated by  Peter Sperry 5 years ago.

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  • #181025

    David B. Grinberg

    Did you know that most federal government contractors can be paid about $1 million per year?

    According to the Washington Post:

    • “Federal executives and employees gag at the thought of contractors getting paid so much.”

    • “The new figure is a one-year increase of nearly $190,000 and a four-year boost of 55 percent.”

    • “The cap does not apply to all contractors, so some could still get more than the $952,308.”


    1) Do federal contractors get paid too much or not enough?

    2) Should Congress impose significantly lower caps on contractor pay, as called for by the Obama Administration and the AFGE, among others?

    3) Should the salaries of top federal executives (SES) be more comparable to contractor compensation caps? If not, why?


    * All views and opinions are those of the author only.

  • #181033

    Peter Sperry

    Government purchase decisions should be based on the value to the government of the product or service delivered. The compensation of the contractor delivering the service is immaterial. Do you ask your auto mechanic how much of their fee is profit or do you ask if they provide quality work at competitive prices?

    If a federal agency needs contract services which they value at $15 million and contractor A can deliver those services for $12 million and contractor B will charge $14 million, should the work go to B which pays their CEO $150k or to A whose CEO makes $1.5 million? Why should the taxpayers reward B for being less efficient than A?

    When goods and services are exchanged on the basis of value given for value received, there is no need for any party to the transaction to know or care what the other parties are keeping as profit.

  • #181031

    David B. Grinberg

    Thanks for the insightful comments, Peter. Your practical analysis sounds like it would make sense in the private sector, but not in federal gov.

    I likewise agree that federal contracts should go to the most competent business with the best performance record. If that were the case then perhaps there would have been fewer problems with HealthCare. gov, for example.

    However, as you know, agencies tend to take the lowest bidder in many instances — albeit with the exception of DoD and defense contractors. Then there are are “preferences” and “set asides” for women and minority owned businesses.

    Another problem appears to be that federal contracting has become a career industry for some companies who have learned the short cuts and mastered all the byzantine technical rules of the game.

    What are your thoughts, Peter, on set asides in federal contracting for women and minority-owned companies? Should they receive what some may call “special treatment” or “preferences” when competing for contracts?

    Thanks again for sharing your wisdom and unique perspectives on this topic.

  • #181029

    Dale M. Posthumus

    The intimation in your first question is absolutely false. I will assume you misread the WaPo article. The rule is that a company (contractor, not individuals) may now use up $900,000 and change of Federal money to compensate its top executive(s). That money is not a direct cost, such as a line in a contract saying “$900,000 for executive pay”. It is calculated into the general/administrative/overhead cost built into rates for labor categories, products, or other pricing across all contracts. First, you would need enough contracts to collect all salaries on those contracts, the costs of running all contracts, total business costs, and delivering the products/services required by those contracts in order to then even get close to appling the compensation cap.

    Are contracting companies paid too much? Generally speaking, this is what Peter addresses and I am in agreement with his statement. Your question seems to raise the counter-question to “are government employees paid too much?” If you are talking about individual employees, I would also say Peter’s value argument still applies. When I hire a plumber, I don’t ask how much the technician is paid or how much the owner gets paid. Describe to me the work, tell me how long it will take and what it will cost to get the work done (proposal, in Govtese). I will check out your reputation (past performance, in Govt parlance). I often use an online tool that gets me several quotes (Request for Proposals).

    So in anwser to your first two questions: 1) probably not too much or not enough, the market pretty much determines salaries; and 2) no, it is silly to compare, as WaPo and AFGE do, the salary of the President and of a company Executive. Full compensation must be considered.

    As for Question #3, I believe there should not be caps for either contractors or Govt employees. The civil service system (and related govt systems) is antiquated and needs to be overhauled. Find ways to let the market influence/determine govt salaries and compensation. Make it easier for people to move in and out of govt employ. The Govt needs to take advantage of what its employees could learn with time outside of the Govt, then bring back to improve Govt.

  • #181027

    David B. Grinberg

    Many thanks, Dale, for articulating your views so clearly and setting the record straight. As noted, I’m no expert on contracting so this is really an educational discussion for me. I appreciate your valuable feedback and excellent points.

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