Healthcare Costs for Ineligible Dependents - Wasn't Clear - Now It's Clear

For the past two days, we've been discussing the new DFARS (DoD FAR Supplement) Cost Principle on Fringe Benefits. The new rule reads:

Fringe benefit costs that are contrary to law, employer-employee agreement, or an established policy of the contractor are unallowable.

Today and tomorrow we want to highlight a few of the comments made by interested parties to the proposed rule.

One respondent to the draft rule stated that the treatment of ineligible fringe benefit costs as expressly unallowable does not comport with CAS 405. CAS 405 uses the term "expressly" in the definition of "expressly unallowable costs" as "...that which is in direct and unmistakable terms." The respondent believed that "fringe benefit costs ... contrary to law, employer-employee agreement, or an established policy of the contractor" are not direct and unmistakable costs. DoD had an answer for this concern. DoD stated that "The Director of Defense Pricing Policy determined these conditions are direct and unmistakable." So there, take that.

Another respondent thought that the FAR coverage was already adequate - that contractors are currently required to exclude fringe benefit costs that do not meet the requirements for reasonableness. DoD had an answer for this concern as well. DoD stated that "The results of the DCAA audits have made it clear that coverage is not sufficiently clear". How's that again? Clear that its not clear?

Now that the auditors are emboldened with this new DFARS rule, we can expect to see increased emphasis on ascertaining whether contractors have effective policies for excluding healthcare payments for ineligible dependents.