Labor Qualifications for Time and Material Contracts

A couple of years ago, we reported an incident where auditors had questioned costs on a Time and Materials Contract (T&M) because the skills of the employees performing the work did not match the minimum skill set of the position contracted for. You can read it here. At the time, the issue remained unresolved so we never heard the end of the story. We still don't know what happened in that specific instance but DCAA (Defense Contract Audit Agency) recently issued guidance that speaks to the issue.

Fundamentally, the guidance requires that auditors coordinate with the contracting officer prior to questioning costs in circumstances where actual skills do not match contracted skills. The action to be taken by the auditor depends upon what the contracting officer tells them: authorization to use a lower skill set has been given, authorization to use a lower skill set will be given, or authorization to use a lower skill set is not given.

In our experience, contracting officer authorization to use a lower skill mix is not a given. Some contracting officers become incensed and demand a refund. Some are more matter-of-fact and simply ask for a price adjustment or other compensation. Others are more pragmatic and look at the overall performance rather than skills of the person performing the job. Regardless of contracting officer (CO) responses, contractors still have a responsibility and obligation to notify the CO whenever there is a difference between contracted skills and the skills of the person performing the work.

FAR 52.232-7(a)(3) states:

Labor hours incurred to perform tasks for which labor qualifications were specified in the contract will not be paid to the extent the work is performed by employees that do not meet the qualifications specified in the contract, unless specifically authorized by the Contracting Officer.

While FAR requires specific authorization, it does not require the contracting officer to provide that authorization prior to the delivery of the work. Sometimes, usually when brought to their attention, contracting officers will approve the use of lower skill employees after the fact.

Even when the contracting officer is not prone to approve the use of lower skill workers, he/she will rarely disallow all of the costs. After all, services were rendered. Instead, the contracting officer will seek a rate adjustment or sometimes add a new line item for the lower skilled category.

You can view the guidance on DCAA's website by clicking here.