Should better paying contractors have a competitive advantage?

Obama proposal would let acquisition managers favor contractors who pay employees more

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.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

Reader Comments

Thu, Mar 4, 2010 William Austin, Texas

Let's see...we pay higher bottom-line contract prices only because companies are willing to charge (and pay to employees) higher labor costs. Not only will taxpayers be financing the higher salaries of industry, as we did with Wall Street bonuses, but industry will also get the talent advantage back by luring government employees from their jobs. I guess this isn't all bad news because locality pay will have to rise to compete with the rising outside salaries.

Mon, Mar 1, 2010 John Arlington

Here's the basic formula. Cost to provide good or service + profit margin = Price. If the administration is willing to start paying more, on average, for goods and services then great. Love the idea. But prices will go up. Already, off in the distance, I can hear the wailing begin.... I must add, though, that as a life long liberal I'm getting VERY disillusioned with this President's belief that he has some ordained privilege to meddle with how businesses function internally. I'm also disappointed in his seeming resentment of the concept of "profit". This is a capitalist system. We can be very liberal and very capitalistic. Profit is what drives companies, it's what drives people to go to work everyday, profit is what drives people to start businesses. They don't do it for the altruistic "common good". They do it to make money. That's our system.

Mon, Mar 1, 2010 Tom

Government contracts pay by the body dollar hour. To make a profit, contractors hire 5 or 6 unqualified persons to try to do the job of one qualified person.

Mon, Mar 1, 2010 Jeff

I work for a big company so this sounds great, but for some reason I'm getting a sick feeling in my stomach!

Mon, Mar 1, 2010

Great Idea! First trying defining "Best Value" for the contracting officers who have been struggling with what it is and how to measure. So far the only solution has been "Best Value" means "Lowest Cost" which translates into I as a small business owner having to trim somewhere the cost and that may be in salaries, profit and overhead. My bank to keep my line of credit wants me to be profitable so not much cutting there, overhead is hard to cut without firing HR and Payroll personnel which leaves salaries.

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