FAR Council Finalizes Compensation Cap to All Employees
The FAR Council has adopted as final, with no changes, an interim rule issued June 2013 to expand the senior executive benchmark to all contractor employees on DOD, NASA and Coast Guard contracts. The rule enacts section 803 of the 2012 National Defense Authorization Act and amends FAR 31.205-6(p) and applies to all contracts awarded after Dec 31, 2011 for compensation costs incurred after Jan 1, 2012. The change allows companies to exempt highly skilled positions such as engineers and scientists.
Two influential industry groups assert the rule is a “significant step backward” stating it applies retroactively back to Jan 1, 2012 which constitutes a breach of contract because it is a “retroactive application to a change to a cost principle for which the government must pay damages.” The delay of 18 months in issuing the change to the FAR will require contractors to “unscramble” their accounting to make this change in allowable costs incurred during the 18 month delay and will require them to maintain more than one billing structure during 2012 and 2013. The FAR Council downplayed the criticism saying it affects a tiny minority of contractors.
