Should better paying contractors have a competitive advantage?

Several Republican senators and procurement experts have voiced their disagreement with a policy Obama administration officials are considering that would give a leg up to contractors who pay their employees more, according to a letter and comments at a hearing Feb. 25.

“We are concerned that the imposition of these requirements, during a time of significant economic turmoil in the private sector and tight federal budgets, could have serious, negative consequences, especially for our nation’s small businesses,” five senators wrote in a Feb. 1 letter to Peter Orszag, director of the Office of Management and Budget.

Today, an Obama administration official said the president hasn't issued any policy regarding a contracting preference. Nevertheless, experts inside and outside of government have offered suggestions to the administration on improving contracting, as the president pledged to do in his March 4, 2009, reform memo.

"Ideas have been put forth for a policy being called the 'High Road' preference reform," but they are, at most, in the development phase, the official said.

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At a hearing yesterday, Sen. Robert Bennett (R-Utah), who signed on to the letter, said the preference would interfere with intelligent management decisions in agencies’ contracting offices.

He questioned whether the preference would hinder procurement professionals who are trained to make good contracting decisions and “put a strait-jacket on circumstances, which will make the procurement process worse.”

The High Road preference would tell acquisition officials to give partiality in awarding contracts to contractors who adopt labor practices beyond those currently required by federal labor laws, such as paying more than minimally required for certain jobs. When considering bids, contracting officers would have to weigh this wage factor along with standard factors, such as cost, past performance, and the contractor’s ability to do the work.

The theory of the policy is that the firms which pay their employees the most money would do a better job on their work, said Steven Schooner, associate professor of law and co-director of The George Washington University’s law program, who testified before the Homeland Security and Governmental Affairs' Contracting Oversight Subcommittee.

“I find this terribly frustrating,” Schooner said. “The bottom line is, the redistribution of wealth, rather than the generation of value, is simply the wrong path to take in public procurement.”

Schooner said the administration spent too much time in the last year aimed at using procurement reforms to benefits unions members and other special interests. He said the government should instead aim reforms at getting the greatest value for its money in what it buys and these days the government should get much better deals from companies because of the economic conditions.

In the letter, the senators wrote that giving preference to higher paying companies would increase the costs of federal acquisitions, unduly distorting the best value proposition. They added that the policy could hinder the government’s ability to buy what it needs because budgets are so tight.

Along with Bennett, Sens. Susan Collins (R-Maine), the committee’s ranking member, Lindsey Graham (R-S.C.), Tom Coburn (R-Okla.) and Olympia Snowe (R-Maine), ranking member of the Small Business and Entrepreneurship Committee, signed on to the letter.

The senators pointed to small businesses as the one that would get hit the worst.

The policy “could preclude them from competing effectively for contracts unless they shouldered the often unmanageable burden of more costly pay and benefits packages,” the senators wrote. Small businesses could choose to not compete for contracts, which would allow larger companies to charge more for their work because the competitive pressure would have decreased.

However, proponents of the High Road policy say higher wages is a value to the government. Scott Amey, general counsel at the Project On Government Oversight, said the watchdog group, supports expanded consideration of responsibility factors when awarding federal contracts.

"Contractors and members of Congress are taking turns criticizing White House's attempts to enforce laws requiring contracts to only be awarded to responsible contractors," Amey said. 

Today POGO, along with the Center for American Progress Action Fund and OMB Watch, sent a letter to President Obama encouraging the administration to use contractors that are ethical and responsible and comply with law.

Without well-paid employees, "work quality can suffer and the government bears hidden costs because taxpayers need to provide income assistance and benefits to low-income families, such as Medicaid and food stamps," the letter states.

In testimony before OMB in July, John Podesta, president and chief executive officer of the Center for American Progress, said the higher standards reduce the likelihood that companies will operate wastefully.

“Contractors that frequently violate labor laws are among the most wasteful of taxpayer funds, with histories of tax evasion and fraud,” according to his testimony.