Compensation Cap on Federal Contractors, Latest FAR Requirement

ed murphy

Article Ed Murphy – CEO at Financial Management Institute


For an explanation of the recent FAR change imposing a new employee compensation cap on federal contractors, go visit:

https://www.federalregister.gov/articles/2014/06/24/2014-14379/federal-acquisition-regulation-limitation-on-allowable-government-contractor-compensation-costs

and

http://federalsoup.com/articles/2014/06/25/rule-will-implement-contractor-pay-cap.aspx?s=FD_260614

The recently revised FAR Part 31 cost principles neither preclude nor forbid contractors from incurring employee compensation in excess of the cap. Instead they make employee compensation in excess of the cap unallowable in determining or negotiating the contract price. But only when the FAR Part 31 cost principles apply. And they don’t always apply! For example, any fixed-price type contract where the price is market-based.

But cost reimbursement and other flexibly priced contracts will be affected by this change. As will those fixed price contracts where cost analysis and related FAR 31 cost principles are used to negotiate the contract price.

So how will the change impact you or your government contractor clients? You decide.

The impact will be zero, if…

No employee earns compensation in excess of the cap, or
All business with Uncle Sam or prime contractors is based on “bottom-line” market based selling prices.

The impact may be minimum or insignificant depending on —

The dollar value of aggregate compensation in excess of the cap;
How and where the excess is recorded (direct or indirect costs); and
The mix of contracts based on market-based vs, cost-based pricing.

My opinion, for what it’s worth.

Take good care of yourselves. Or as Garrison Keillor would say “Be well, do good work, and keep in touch.”
federalregister.gov federalregister.gov

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About Stephanie Amend

Stephanie is the Principal and CEO of Arrowhead Solutions, LLC, a solutions firm specializing in assisting established small businesses be successful government contractors.

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