No, they don't. Billing rates are fixed based on the experience and education levels of the people working on the contract. If the government says they won't pay more than, say, $250/hour for a security expert that is all the contractor is going to get, and that in turn limits the amount the contractor can make. Pay at government contractors is better than the government itself, but it is still shit compared to the rest of the tech industry. This is particularly true when you look at variable compensation (which is virtually nonexistent in government contractor land).
The employee’s compensation is more about the number of pimps^H subcontractors between him and the contract.
Another example are service based contracts where the government pays a fixed price for delivery of one or more outputs. Those outputs might just happen to align with what particular employees do. These things are generally aligned to make the contractor more money vs the employee. But the employees are well compensated, and the overall deal is good enough that they don’t lose a lot of talent.
I'm not talking about consulting, I'm talking about standard T&M contracts. There is a limit to how much an individual can be billed out for, which by necessity limits their compensation. As for what people are billed at, the government auditors require proof of credentials and experience.
> Another example are service based contracts where the government pays a fixed price for delivery of one or more outputs. Those outputs might just happen to align with what particular employees do. These things are generally aligned to make the contractor more money vs the employee. But the employees are well compensated, and the overall deal is good enough that they don’t lose a lot of talent.
This generally happens at small contractors for small contracts. Contracts so small the big boys wouldn't even notice their existence (assuming they even qualify to bid). The vast majority of people working for government contractors are not in this position.
Which means that your managers are still getting paid civil servant wages, no matter how well paid the contractors working under them are. Consider how well run a tech firm would be if it paid less and less competitive salaries the higher up in management you go.
(Assuming 40h per week, 47 weeks per year because systematic staff shortage and EU-duration holidays because that’s what I’m used to).
$250/hr billed usually results in $125-140/hr in the contractor's pocket, and $110-125/hr for the place that sent them out.
My sources are VPs from some of the large contingency recruiters, founders of some mid-range consulting shops (~500 person headcount), and having to help run a smaller consulting shop (~20 employees) in the past before going fully independent.
As for the rest, I am not talking about consulting-style contracts where a company is billing out people individually. I'm talking about contracts for development of bespoke systems, provide specific services, and so on.
When Raytheon gets a contract, they get it to build X. They need to account for the work, and the amount they get paid for labor is the number of recorded hours times the agreed-upon rate for that specific type of labor. There is frequently also a soft cap on the number of hours that can be billed in specific periods. The billed rate covers not only the employee salary but also benefits, overhead, and profit.
So for instance, if, within a given discipline like "security", there are 6 experience levels (1 = fresh-out undergrad, 6 = most senior), and within those, 4 maturity levels (20th thru 80th percentile, say), then the 80th percentile of, say, level 5, will be a very high rate.
Because it's HN, and the comments above were referring to boutique security consultants ("top NSA specialists work[ing] for contractor firms"), I assumed that's who we're talking about. Cybersecurity, especially, has become a domain where institutional constraints have been lifted in the last few years - it requires less on-paper experience to get up to the "level 5" above.
On the other hand, and in agreement with your comment, the aggregate labor rate for a large contract (I'm sure $1B qualifies) could not be too out of whack with industry norms, and this would be a significant constraint on rates.
NSA leadership has clearly acknowledged the impediment:
The big change these days is there’s a supply-demand imbalance between the outside and the inside
Total compensation for [SV and other cities that tech start-ups call home] jobs can reach $200,000 or more, meaning even relatively junior cyber professionals in the industry can make more than top officials at the NSA.