Within these parameters, bonuses and incentive compensation are allowable provided
- Awards are paid or accrued under an agreement entered into in good faith between the contractor and the employees before the services are rendered or pursuant to an established plan or policy followed by the contractor so consistently as to imply, in effect, an agreement to make such payment; and
- Basis for the award is supported.
It is important to understand these conditions. The government considers this a high risk area and will challenge bonuses that do not meet these criteria. Many contractors have been tripped up in this area because they did not have an agreement in place prior to services being rendered.