Industry: Proposed Contracting Cuts “Arbitrary” Defense contractors are fighting a proposed cut in contract services and a freeze in contractor salaries. The Senate Armed Services Committee is proposing to cap Defense Department spending on services at 2010 levels. The committee’s version of the 2012 defense authorization bill would cut $1.1 billion from DOD’s operations and maintenance accounts. “At a time when the Department is seeking efficiencies in every area of its operations, a continued increase in funding for contract services—above funding levels already bloated by a decade of unconstrained growth—cannot be justified,” the committee said in its report on S. 1253. The Professional Services Council, a contractor association, protested what it called the “arbitrary numbers.” PSC President Stan Soloway said reductions in the defense budget will have the effect of cutting contract spending, even without such a directive from Congress. The committee report said service contract spending should be reduced by eliminating lower priority services and negotiating lower labor rates and overhead rates, among other things. By holding the line on contractors’ wages, the committee said it is treating contractors the same as federal employees, whose pay is frozen. But Soloway pointed out that federal workers will get their scheduled step increases, and said many contracts contain similar salary escalators. Soloway said contractors are confused by the many different numbers floating around as DOD, the Office of Management and Budget and Congress try to cut contract spending. Defense Secretary Gates has proposed a 10% reduction in certain services contracts in each of the next three years; OMB has ordered a 15% decrease in management support contracts in one year; and the Senate committee is proposing a 10% cut in funding for staff augmentation contracts and contracts for functions closely associated with inherently governmental functions. The disparate spending cuts “lack a cohesive or connective tissue,” Soloway complained in a July 13 media conference call. The Senate bill would extend the current cap on allowable executive compensation costs to cover all of a contractor’s management employees. The House-passed defense authorization bill would broaden the cap even further, to cover all contractor employees working on a federal contract.