OK for Government Employees, but not Contractor Employees

waiting Redstone Goverment ConsultingAs a by-product of government shutdowns, we’ve now seen two occasions where government employees were paid for non-productive time while in furlough status (in fact, the furloughed employees were explicitly prohibited from working notwithstanding the fact that in both 1995 and now in 2013, employees were “made whole” once the government was funded.  Although it was through no fault of the government employees who have been compensated for non-productive time, the fact remains that the taxpayer is footing the bill for idle, non-productive time on the part of thousands of government employees.

Apparently the government is not so benevolent when the idle time is on the part of contractor employees whose labor costs are directly or indirectly charged to a government contract.  Case in point, LG Chemical just agreed to “repay” $1.2 million in ARRA (“Stimulus”) funds for idle employees assigned to a lithium ion battery plant in Holland.  The ARRA funding, more than $150 million, was for the purpose of building and operating a $300 million lithium-ion plant (providing batteries for “hybrid” automobiles); however, the employees were allegedly watching movies, playing games or performing volunteer services while the plant was idle.    The company asserted that it paid workers while the plant was idle (pre-production) to maintain a qualified workforce in anticipation of production.   If accurate, the company assertions are by no means unique to this particular application; unfortunately contractors do hire employees in anticipation of “productive employment”, but unexpected delays equate to idle-time.  In the perfect world, employees would only be hired to begin work on the first day of actual production; however, we don’t live in a perfect world.

In its press release, the US Department of Justice stated that the company (LG Chemical) did not cooperate with the investigation; specifically, the company “failed to disclose the number of employees involved in those activities, the scope of those activities and the resulting losses to the government”.   Not cooperating with the US Department of Justice is never a good strategy because it motivates the investigators who are not exactly objective to begin with.

In this case and in similar cases where the facts do not clearly indicate anything inappropriate by the company, but the company allegedly does not cooperate with DOJ, the end result is a predictably no admission of any company wrongdoing, but a settlement for a somewhat nominal amount (if for no other reason than to stop incurring costs to deal with the government investigation).    It remains to be seen if there would have been any investigation or any repayment had the company prematurely hired production employees but left them totally idle in contrast to watching movies, playing games or performing volunteer work.  At the very least, the US taxpayer is accustomed to costs for idle time (furloughed government employees) while most likely taking a dim-view of contractor idle time converted to watching movies, playing games or (heaven forbid) performing volunteer work while waiting for the production lines to become operational.

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Written by Michael Steen

Mike Steen is a Senior Director with Redstone Government Consulting, Inc. and a specialist in complex compliance issues to include major contractor cost accounting & business system regulations, financial compliance, resolution of DCAA audit issues, Cost Accounting Standards application, litigation support, and claims preparation. Prior to joining Redstone Government Consulting, Mike served in a number of capacities with DCAA for over thirty years, and upon his retirement, he was one of the top seven senior executives with DCAA. Mike Served as a Regional Director for two DCAA regions, and during that time was responsible for audits of approximately $25B and 800 employees. In October 2001, he was selected for the Senior Executive Service and in 2006 he received the Presidential Rank Award. During Mike’s tenure with DCAA, he was involved in conducting or managing a variety of compliance audits, to include cost proposals, billing systems, Cost Accounting Standards, claims, defective pricing, and then-evolving programs such as restructuring, financial capability and agreed-upon procedures. He directly supported the government litigation team on significant contract disputes and has prepared and presented various lectures and seminars to DCAA staff and business community leaders. Since joining Redstone Government Consulting in June 2007, Mike has developed and presented training and seminars on Government Contracts Compliance to NCMA, Federal Publications Seminars and various clients. Mike also is a prolific contributor of written articles to government contracting publications, as well as to our own Government Insights Newsletter. Mike also serves as the director of our training service offerings, with responsibilities for preparing and developing course content as well as instructing our seminars to clients and general audiences throughout the U.S. Mike also serves as a faculty instructor for the Federal Publications Seminars organization. Education Mike has a BS Degree in Business Administration from Wichita State University. He is also a graduate of the DCAA Director’s Fellowship Program in Management, and has a Masters Degree in Administration from Central Michigan University. Mr. Steen also completed a number of OPM’s management and executive development courses.

About Redstone GCI

Redstone Government Consultants are a team of the most senior industry veterans and the brightest new talent in the industry. Many have held senior government positions including leadership roles in the DCAA. Our new talents bring significant accounting and software experience along with fresh perspectives, inspiration and energy to our team. Through our leadership and combined experience, we provide a unique perspective, bringing both government and contractor proficiencies to bear and ensuring rock-solid government compliance for our clients.

Topics: Government Shutdown, Contractor Employee Compensation, Government Compliance Training