Federal Acquisition Regulation: Expansion of Applicability of Senior Executive Compensation Benchmark

Effective May 30, 2014, the DoD, GSA, and NASA adopted as final an interim rule that updates FAR 31.205-6(p), “Limitation on allowability of compensation for certain contractor personnel.”

FAC 2005-74

This rule expands the scope of FAR 31.205-6(p) compensation caps to all contractor employees working on DoD, NASA, and Coast Guard contracts awarded on or after December 31, 2011. Under the final rule, compensation costs incurred on or after January 1, 2012, for all employees, not just “executive employees,” in excess of Office of Federal Procurement Policy (OFPP) compensation benchmarks are unallowable.

The executive compensation threshold relevant to the final rule is $952,308, which applies to costs incurred on or after January 1, 2012 (congruent with the final rule’s applicability period).

Note that the final rule does not address changes to the compensation benchmarks enacted by the Bipartisan Budget Act of 2013 and the National Defense Authorization Act for Fiscal Year 2014 that we previously discussed. The FAR Council is considering another interim rule (FAR Case 2014-012) that would reduce the compensation cap.

The FAR Council adopted the interim rule as final and unchanged although several respondents commented against it because of its retrospective application, the impact on a company’s claimed costs, and the additional administrative burden posed.

The views expressed in this article are those of the authors and do not necessarily reflect the position or policy of Berkeley Research Group, LLC.