Costs Incurred During a Strike Period

FAR (Federal Acquisition Regulations) does not provide specific guidance with respect to the allowability of costs during strike periods.

FAR 22.101-1(b) requires that Governmental Agencies (e.g. DCMA and DCAA) remain impartial concerning any dispute between labor and contractor management and not undertake the conciliation, mediation, or arbitration of a labor dispute. Later provisions in the same FAR section, contracting officers are instructed, in the event that labor disputes give rise to work stoppage, to impress upon contractors that they shall be held accountable for reasonably avoidable delays. Further, all costs incurred during strikes will be carefully examined to ensure recognition of only those costs necessary for performing the contract in accordance with the Government's "essential interest".

Despite its stated neutrality in resolving labor disputes, the Government will be anything but neutral when in comes to paying for strike related costs. Costs directly attributable to the strike, which would not have been incurred otherwise, such as extra security guards, special legal expense, arbitration costs, etc. will all come under close scrutiny and may not be fully reimbursable (even as an indirect expense). Costs which are abnormally higher during the strike period, such as recruitment, training of new employees, etc is another category that will get a lot of attention by contract auditors. Remember, contractors have an affirmative duty to mitigate all strike-related costs.

Costs of a continuing nature will be evaluated based on a number of factors including reasonableness, the extent to which subsequent production makeup operations were undertaken to maintain production schedule, the actions taken to minimize costs during the period and any other factors that have a bearing on the expeditious settlement of the labor dispute.

Sometimes the Government will insist that a contractor accumulate strike related costs and allocate them over the period of the resulting collective bargaining agreement. For example, if the collective bargaining agreement is three years, strike related costs would be accumulated and allocated over production for the next three years.