Backpay is unallowable under Government contracting except under very limited circumstances. None of these circumstances allow contractor discretion to pay or not to pay. Those circumstances include:
- The payments result from underpaid work that was actually performed and the payments are required by a negotiated settlement, order, or court decree.
- The payments are to union employees for the difference in their past and current wage rates for working without a contract or labor agreement during labor management negotiations.
- The payments are to nonunion employees that are based on the results of union agreement negotiations, only if:
- A formal agreement or understanding exists between management and the employees concerning these payments, or
- An established policy or practice exists and is followed by the contractor so consistently as to imply, in effect, an agreement to make such payments.