Tuesday, March 13, 2018

Overtime Charged to Government Contracts Requires Pre-Approval - Part 1

This is the first of a two-part series on overtime. Today we will discuss the FAR (Federal Acquisition Regulation) requirements for overtime approval. Tomorrow we will discuss the Government's oversight activities at contractors who incur and charge overtime to the Government.

The Government does not want to pay for overtime costs. The fundamental contracting policy is for contractors to perform all contracts, so far as practicable, without using overtime, particularly as a regular employment practice, except (i) when lower overall cost to the Government will result or (ii) when it is necessary to meet urgent program needs (FAR 22.103).

For fixed price contracts, it is unlikely that the Government will negotiate consideration for overtime except perhaps in very unusual circumstances. We haven't heard of any cases which doesn't mean there hasn't been. For cost type contracts, FAR requires that overtime requests be in writing to the contracting officer and must include:

  1. Identification of the work unit (e.g. department or section) in which the requested overtime will be used together with present workload, staffing, and other data of the affected unit sufficient to permit the Contracting Officer to evaluate the necessity for the overtime.
  2. Demonstration of the effect that denial of the request will have on the contract delivery or performance schedule.
  3. Identification of the extent to which approval of overtime would affect the performance or payments in connection with other Government contracts, together with identification of each affected contract.
  4. Reasons why the required work cannot be performed by using multi-shift operations or by employing additional personnel.

There are a couple of things to keep in mind regarding overtime requests. Just because the contacting officer is willing to authorize overtime, doesn't mean that there will be additional funds allotted to the contract. Using funds to pay overtime may mean that there is less funds to do the real work of the contract or the contract ends sooner than expected, or the scope is scaled back. Second, the contracting officer approval process varies widely ranging from a perfunctory nod to detailed analysis. Don't expect consistency among contracting officers for the approval process.

Contracting officers may be more inclined to approve overtime requests for the following events.

  • Meeting essential delivery or performance schedules
  • Make up for delays beyond the control and without the fault or negligence of the contractor
  • Eliminate foreseeable extended production bottlenecks that cannot be eliminated in any other way.

When the use of overtime is authorized under a contract, the office administering the contract and the auditor will periodically review the use of overtime to ensure that it is allowable in accordance with the stated criteria. Only overtime premiums for work in those departments, sections, etc., of the contractor’s plant that have been individually evaluated and the necessity for overtime confirmed shall be considered for approval. Tomorrow we will discuss the audit procedures for ensuring the propriety of overtime.

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