RGCI-DCAA Takes the Lead on Compensation Cap

DCAA Takes the Lead Over Office of Federal Procurement Policy (OFPP)

In 2013, Congress put in place a new process for the calculation and publication of the compensation limitation (Cap) for all federal contractor employees. The process places the responsibility to calculate and publish the cap using the Bureau of Labor Statistics (BLS) Employment Cost Index (ECI) data on the Office of Federal Procurement Policy (OFPP). OFPP has failed in this responsibility for the last few years.

DCAA issued guidance (20-PSP-004, Audit Alert on Update to the Bipartisan Budget Act of 2013 (BBA) Contractor Compensation Caps – Calendar Years (CY) 2019 and 2020) to it auditors that anyone can compute the new cap using the formula published by OFPP along with the Employment Cost Index published by BLS. The guidance directs the auditors to use the calculated caps even though OFPP has failed in its responsibility. While we applaud this guidance, we are surprised that DCAA would take such an unusual step as getting out in front of OFPP.

We do wonder if DCAA is questioning itself as the end of the guidance states DCAA will not update its Contract Audit Manual (CAM) until OFPP “formally” publishes the limitations. So DCAA’s few and far between forays into the deep end of the pool is a little couched.

What are the Calculated Caps?

DCAA guidance states: “Auditors should use the following cap amounts in evaluating all contractor employee compensation costs proposed during CY 2019 and 2020, applicable to contracts awarded on or after June 24, 2014:”

Contractor Compensation Caps for Contracts Awarded after June 24, 2014 (FAR 31.205-6(p)(4))

For Costs Incurred Between

Cap Amount

1/1/2020 – 12/31/2020

$555,000

1/1/2019 – 12/31/2019

$540,000

2020: $540,000 x (138.1 / 134.4), rounded to the nearest thousand

2019: $525,000 x (134.4 / 130.7), rounded to the nearest thousand

Formula – Current FY Cap Amount = Prior FY Cap Amount x Change in Employment Cost Index for all workers [BLS Table 4. Compensation (Not Seasonally Adjusted) Employment Cost Index for total compensation, for civilian workers, by occupational group and industry. (Twelve Months Ended September 30)]. Source: https://www.bls.gov/web/eci/ecicois.pdf

DCAA Historical Position

Over the years, many DCAA auditors have taken the position that the last OFPP published limitation must be used for all years where OFPP has not published a new limitation. We have even seen auditors insisting on contractors adjusting incurred cost proposals where the contractor calculated the new amount as the basis of allowable compensation.

This position was derived from a very strict reading of the FAR 31.205-6(p)(4)(ii): “the compensation of all employees in excess of the benchmark compensation amount determined applicable for the contractor fiscal year by the Administrator, Office of Federal Procurement Policy (OFPP) are unallowable under 10 U.S.C. 2324(e)(1)(P) and 41 U.S.C 4304(a)(16) … [and] … is the sole statutory limitation on allowable employee compensation costs …” (emphasis added). Let us hope we do not have to relive history with any hardline auditors.

Many DCAA auditors have taken this position to hold that even provisional billing rates and forward pricing rates should not reflect projected limitations using published Congressional Budget Office ECI forecasts.

Does This Open the Door for Forecasting the Caps?

It is very doubtful DCAA would get far enough into the pool to advise its auditor to project future year caps or limitations for the purposes of billing or forward pricing rates. While for most short-term contracts, we do not believe the up-hill battle is going to be worth the effort. However, for long-term contracts where the pricing is being locked in up front, bringing in the $10,000 to $15,000 a year increase into the picture may be very worthwhile. At least, you will have one more position to leverage in negotiations.

Redstone GCI is available to assist contractor’s in proposed compensation positions for both incurred cost and forward pricing. Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations in applying the Federal Acquisition Regulation (FAR) compensation requirements.

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Written by John C. Shire, CPA

John C. Shire, CPA John is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to the DFARS business systems, CAS Disclosure Statements, and DCAA/DCMA compliance preparation, advisory, and defense. Prior to joining Redstone Government Consulting, John served in a number of capacities with DCAA/DCMA for more than 30 years. Upon his retirement, he was based in Texas as an SES-level Corporate Audit Director for DCAA, managing a staff of 300 auditors at one of the largest DOD programs. Professional Experience John began his career in the late 80s working in the Clearwater, FL audit office and over the next three decades he progressed through a number of positions within both DCAA and DCMA with career highlights as DCAA Program Manager at Ft. Belvoir, Chief of Technical Programs Division, Deputy Assistant Director-Policy, Director of the DCMA Cost and Pricing Center, the SES-level Lockheed Martin Corporate Audit Director, and Director of Integrity and Quality Assurance. John’s three decades of experience in performing and leading DCAA auditors and DCMA reviewers provides a wealth of expertise to our clients. John’s role, not only in the performance of audits, but also in the development of audit policy affords him unique insights into the defense of audit findings and the linkage of audit program steps to the underlying regulatory framework. He is an expert in FAR, DFARS, and other agency acquisition regulation, as well as a subject matter expert in the Cost Accounting Standards having reviewed and provided audit feedback on many of the largest and most complex cost accounting practices during his tenure with the DCAA. John’s tenure with DCAA and DCMA came at a critical time during each agency’s history where a number of changes were occurring such as the response to the ICS backlog, development of audit approaches to the DFARS Business Systems and implementation of new audit initiatives as a result of Congressional oversight through the NDAA process. John’s leadership at the DCMA Cost & Pricing center saw oversight of all major DOD pricing actions, leadership of should cost review teams, the Commercial Pricing group and many other areas of strategic value to our clients. His involvement in these and other Agency initiatives is of great value to our clients due to his in depth understanding of DCAA and DCMA’s internal policy directives. Education John holds a Master of Business Administration and a B.A. in Accounting from the University of South Florida. Certifications Certified Information Systems Auditor State of Alabama Certified Public Accountant

About Redstone GCI

Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals.

Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs.

One thing our clients can be certain of is that with the Redstone GCI Team in your corner, there is no problem too big and no issue too technical for our team to tackle.

Topics: Employee & Contractor Compensation, Incurred Cost Proposal Submission (ICP/ICE), DCAA Audit Support, Government Regulations, Federal Acquisition Regulation (FAR)