Two provisions in the 2012 Defense Authorization Bill directly impact defense contractors. One applies to a contractor pay cap to all contract employees, and the other puts more responsibility on contractors to stop counterfeit electronic parts.
The bill prohibits contractors from charging more than $690,000 for the salary of any of its employees. That incremental pay cap, had previously only applied to a contractor’s top five executives.
The effect of this provision is contractors will have to “cover a larger percentage of their employee salaries,” said Trey Hodgkins, senior vice president for national security and procurement policy at TechAmerica.
The compensation cap could actually end up costing the government more money. “Companies are now having to look at either absorbing these additional expenses themselves or passing those costs along onto whoever is buying those goods and services,” Hodgkins said.
The counterfeit parts provision adds contractor liability for integrating electronic components, Hodgkins said.
“If there’s anything found to be counterfeit in any supply chain of any electronic device, whether it’s a weapons system, an aircraft, an IT system, a network, all of those electronics are covered under this new provision,” he said.
Hodgkins said industry supports the objective to control the “infiltration” of counterfeit parts. But the provision puts liability on contractors even if they do not have control over the supply chain.
“We think there can be some perfections made to the language (in the counterfeit parts provision) to make sure the contractors are liable to things they can control, that includes their entire supply chain,” Hodgkins said. Otherwise, he said there should be shared liability.
This story has been updated from its original version, which stated the authorization bill included a $400,000 contractor salary cap. The bill does not include this cap.