Recent DCAA guidance addresses the allowability of bonuses or premium pay as an element of compensation for employees with security clearances.  Though FAR 31.205-6 does not explicitly address these expenses the FAR 31.001 definition of compensation is sufficiently broad to cover the expenses.  Accordingly, additional costs – such as premium pay, special pay and bonuses – used to recruit and retain employees with a security clearance are allowable compensation costs if they are reasonable and allocable to government contracts.  The guidance states that FAR 31.201-3 places the burden on the contractor to establish the reasonableness of these costs, namely for determining whether “external market considerations” – compensation surveys – demonstrate the reasonableness of the security clearance bonus and premium costs.

The guidance stresses that auditors are not to perform independent tests to determine reasonableness.  Rather, the contractor’s compensation system is supposed to provide the auditor sufficient evidence to demonstrate reasonableness (e.g. use of compensation surveys).  When the contractor’s system does not demonstrate reasonableness and the auditor does not have access to pay surveys that adequately represent the contractor’s market, they are instructed not to perform an independent test of reasonableness but instead the auditor should report the condition as a “significant system deficiency” and allow the contractor to take corrective action.  Until the auditor can demonstrate the additional premium is reasonable, the auditor should coordinate with the ACO to determine whether other actions (such as withholding payments of amounts billed by the contractor) should be taken to protect government interests (05-PPD-035(R).

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