Currently, under part of the fiscal 1998 national defense authorization
act codified as 41 USC §1127, companies with cost reimbursment contracts can claim as part of their overhead relevant portions of executive compensation capped at $763,000 annually. If Congress doesn’t pass legislation that lowers the cap, it will go up to more than $950,000 in the coming weeks, Jordan said.
Obama is proposing to abolish the current formula for the cap and tie the reimbursement cap to the president’s $400,000 a year salary and apply it across-the-board to all defense and civilian cost-reimbursement contracts, Jordan said.
Contractor executive salaries are calculated according to an industry-average formula set annually by the Office of Management and Budget. Nothing prevents contractors from paying more than the cost-reimbursment executive salary cap, since the cap is just a part of the cost reimbursment formula used in contract types where the government reimburses contractor costs.
“Tying the cap to the president’s salary provides a reasonable level of compensation for high value federal contractors while ensuring taxpayers are not saddled with paying excessive compensation costs,” Jordon said.
Jordan wasn’t clear during a May 31 press call on exactly how much the government would save if the cap was lowered, saying that his office didn’t have “a definitive dollar amount.” The proposal has the potential to save hundreds of millions of dollars, he added.
The proposal provides for an exemption to the cap if an agency determines additional payment is necessary to ensure it has access to the specialized skills needed for certain projects, such as for certain scientists or engineers, Jordan said.