NDAA contractor cap RedstoneWith the House of Representatives having passed its version of the FY 2014 National Defense Authorization Act (NDAA), as well as a federal budget agreement, both of which establish new guidelines and annual ceilings on allowable government contractor executive salaries, the question is what will the Senate do with both agreements when they address those specific revised caps. Moreover, because the House-passed federal budget and the NDAA have different annual compensation caps and contractor personnel to which these caps would be applicable, will these differences be reconciled in final versions of both budget and NDAA agreement?

Several days ago, House representatives finalized its version of the NDAA and agreed to set the annual compensation which the government would be willing to reimburse under Department of Defense (DOD) contracts, which incorporate the FAR Part 31 Cost Principles, at $625,000. The ceiling would be applicable to all contractor employees (not just top five executives), except for certain classifications to be approved by agency heads, and the basis for future annual escalation adjustments would be based on the Employment Cost Index. The House approved ceiling is substantially lower than the new approved FAR compensation cap of $952,000, established by the OMB for government fiscal year 2012.

When passing its version of the FY 2014 federal budget, however, the House established a different compensation cap at $487,000, ostensibly applicable to all government and subcontractor contractor employees (civilian and DOD), with different labor skill classification exemptions that those stipulated for DOD in the NDAA. Both the NDAA and the federal budget contractor cost limitations would be applicable to government contracts awarded 180 days after both agreements become law.

Assuming that the Senate was to approve both House agreements, with different allowable government contractor employee ceilings an employees to which ceilings are applicable, the legislators have two choices to consider in marrying the two different ceilings and the contractor people to which they would apply: do nothing, leave it to the intuitive thinking of procurement agencies (or the FAR councils) on how to administer two separate compensation caps applicable to the same contractors/contracts, which would undoubtedly turn into a major disaster story for affected contractors, or; compromise and agree to a single cap for both federal budget and NDAA administration purposes, which we believe will occur when the Senate takes up debate on the House bills.

Notwithstanding the House approved bills, the Senate has yet to make up its mind on reasonable employee annual allowable compensation that can be passed on by contractors through cost based government contracts and be shared in by the government. More conservative contractor compensation ceiling proposals pontificated by Senate members are still alive, such as lower annual caps at $400,000 (President’s salary), and $230,700 (Vice-President’s salary).

Beware government contractors: whatever happens, a likely outcome of approved an signed budget and NDAA agreements will be ceilings and subsequent annual increases lower than the current $952,000 annual cap for FY 2012 and beyond and the basis on which escalation adjustments are calculated at this time.

Written by Darryl Walker

Darryl Walker Darryl Walker is a Senior Director for Government Compliance with Redstone Government Consulting, Inc., and formerly served as an Owner and Technical Director for the Beason & Nalley Government contract consulting group for over ten years. He provides content for our Government Insights Newsletter, provides training courses to government contractor and business community leaders, and consults with government contractors regarding a vast range of issues including cost proposals and presentations, internal controls, proposal preparation, compliance with the FAR and Cost Accounting Standards, litigation support, specialized claims, defective pricing issues, liaison with procurement and DCAA audit officials, and accounting and management systems compliance. Prior to joining Redstone Government Consulting, Darryl worked with the Defense Contract Audit Agency (DCAA) for almost 34 years in a variety of technical and management capacities. During his tenure with DCAA, Darryl provided audit services to a wide range of government agencies, including the Department of Defense, NASA, Department of Energy, Department of Interior, General Services Administration, and Department of Justice. During his experience with DCAA, Darryl audited over 3,000 government contractors throughout the Southeastern United States, Europe, and the Middle East. Education Darryl is a graduate of Texas Wesleyan College with a major in accounting and minor in economics.

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, Cost and Pricing and Budgeting