Lowered Compensation Cap - What's Included in Amount?

Last week we discussed the new compensation cap ($487 thousand) that goes into effect this month (for contracts awarded after June 24th) and the need for contractors to reflect the lowered cap in their proposals and in the forward pricing rates. If contractors don't, the Government will. You can read that posting here.

"Compensation", in the context of the new statute, is defined in the law and is different than what one might conclude if referring to FAR Part 31.205-6, Employee Compensation. But that's not the case. "Compensation" subject to the compensation cap includes the following:

1. Basic salary/wages
2. Bonuses/Incentive compensation (to the extent it is otherwise allowable)
3. Deferred compensation
4. Employer contributions to Employee Stock Ownership Plans (ESOPs)
5. Employer contributions to defined contribution pension plans

Notable exclusions from this listing include medical insurance, unemployment benefits, post-retirement benefits other than pensions, contributions to qualified pension plans, company furnished automobiles, and severance pay.

This new compensation cap applies to all Government contracts, not just DoD contracts. Each Agency however, is implementing it differently. DoD, for example will relay on DCMA and DCAA to ensure compliance. DOE (Energy) on the other hand, since it has a lot of M&O contracts (Management and Operating) and already has procedures in place to approve compensation levels, will require its contractors to submit information by January 15th of each year in order for the contracting officer to make a determination. We haven't surveyed all of the Agencies but contractors could expect to hear from their contracting officers regarding implementation.

We stated this in a previous post but it bears repeating. The Government is not responsible for ensuring that contractors' cost or pricing data is current, complete, and accurate. That is contractor responsibility. Failing to adjust proposals and indirect rates for the new, lowered compensation cap could leave contractors open to TINA (Truth-in-Negotiations Act) violations.