New Compensation Cap Takes Effect June 24 Causing Confusion
The allowable cost limit for reimbursable compensation for contractor and subcontractor employees drops to $487,999 for contracts awarded and costs incurred after June 24, 2014. The new limit was set by the Bipartisan Budget Act (BBA). The new cap adheres to section 702 of the BBA that revised the compensation cap to apply 180 days after enactment of the Act. The cap will apply to compensation of all employees not just senior executives where an exception can be allowed for highly skilled employees such as engineers and scientists to “ensure the agency has continued access to needed skills.” The BBA $487,000 cap is a significant reduction over the $952,308 set by the Office of Procurement Policy established in 2012. The BBA was approved by the Senate on Dec 18, a day after the National Defense Authorization Act which called for a $650,000 cap where the President signed both on Dec 26th but signed the BBA last making the lower cap apply. The BBA cap will be adjusted annually to conform to the Bureau of Labor Statistics inflation index.
Though the cap takes effect June 24, 2014 some commentators have stated they have no idea what the cap is for 2013 while others state the 2012 cap of $952,308 will apply in 2013 unless it is changed. The OFPP has been “erratic” in establishing its mandated compensation caps where it waited until December 2013 to establish the $952,308 cap for calendar year 2012. The confusion has been increased by other changes such as application of the cap to all employees of contractors and subcontractors with DOD, NASA and Coast Guard awards. This meant that companies doing business with these agencies as well as civilian agencies had to adjust their accounting methods to deal with different caps – one for the top five executives and one for all employees. At the end of 2014 contractors may find themselves computing one general and administrative rate for civilian agency contracts awarded by June 24, 2014, another for DOD contracts awarded before that date and yet another for all contracts awarded after June 24, 2014. It has been “a little bit of a mess” since it was not clear at the time the President signed the two bills on Dec 26th which cap would take precedence.
