Incentives vary among contractors and usually reflect differences in individual circumstances and reasonableness must be established on a case by case basis. Sometimes contract solicitations will provide guidance. Among contractors operating in hostile areas, there are standards and unwritten rules. The State Department may also be a source of premium amounts applicable to specific locations.
Contractors proposing (and paying) premium pay will, at some point, be asked to justify the reasonableness of the premium pay amounts. This could get a little tricky because it involves a high level of judgment in evaluating factors such as:
- Country and city where assigned
- Distance of work site from actual battle lines and surrounding areas of imminent danger
- War hazard differentials being offered by other defense contractors in the same location
- Employee response to any lower war hazard differential pay offers made by the contractor
- Availability of alternate workers at appropriate skill level, and
- Other compensation offered, such as bonuses and insurance coverage.
Because these premiums can be subjective and to avoid disputes down the road, we recommend that any contractor (or subcontractor) pursuing work where war hazard pay is necessary to enter into an advance agreement with their cognizant contracting officer over the amount and breadth of such payments.
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