Thursday, November 29, 2012

Compensation - Part 14 - Employee Rebate and Purchase Discount Plans

This next prohibition/limitation on compensation is very straight-forward and almost needs no explanation. Based on our research, there has never been a board case that addressed this section of the FAR (Federal Acquisition Regulations).

The prohibition states:
Rebates and purchase discounts, in whatever form, granted to employees on products or services produced by the contractor or affiliates are unallowable.
There was a time when employee discounts were common and prior to this prohibition, there were questions surrounding the allowability of such costs. Back in the 1970s when Ford was in the aerospace business (Ford Aerospace), the company offered employees significant discounts on the purchase of Ford autos. Also, back in the 1970s, when GTE Sylvania was in the electronics business, it offered deep discounts to employees on its consumer products (Sylvania TVs, stereos, etc).

These days, except for airlines and universities, we do not see many examples where Government contractors offer discounts to employees on products they produce (It doesn't seem likely that Boeing will offer employee discounts on their 737).

Companies can still offer discounts to employees, they just cannot charge the discounts to the Government, either directly or indirectly.

Next: Section (o) - Postretirement benefits other than pensions (PRB).

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