In late 2013, the BBA (Bipartisan Budget Act) significantly changed the FAR 31.205-6(p) regulatory cap for allowable contractor employee compensation. In a highly politicized action, the Obama Administration convinced Congress to reduce allowable compensation to $487,000 for any contractor employee effective for contracts on or after June 24, 2014. Additionally, Section 702 of the BBA prescribed the method for annual increases to the statutory cap (based upon the change in the Employment Cost Index for all workers as calculated by the BLS (Bureau of Labor Statistics).
Rule Making Without Notification?
Many of us have been (mistakenly) relying on FAR updates (posted in the Federal Register) as the Government’s notification of the annual increases, after all, the $487,000 “cap” established by the 2013 BBA was published as an interim rule in the Federal Register on 06/24/2014 and by all appearances, annual increases would follow the same process (just as annual increases had been posted for years under the prior law, 41 USC 1127). However, OMB has inexplicably bypassed the normal rule making process (i.e. published nothing in the Federal Register) and quietly published revisions to the BBA cap. Those revised “caps” are as follows: 
- The revised caps can be found at the Office of Federal Procurement Policy website here.
- The link to the BBA compensation document (with the amounts listed above) is found here.
Minute Increases
As expected, the annual increases are nominal at best; with many contractors, the relatively small amount of the increase will probably not move the contractor G&A rate (assumes that most contractor employees whose compensation exceeds the cap are in the G&A pool).
Little Help From FAR
As to the unexpected process for posting the updates, FAR 31.205-6(p)(4) is the regulation which applies to the “cap” on or after 6/24/2014 and to the extent that the cap is subject to revisions, FAR mentions Section 702 of Pub L. 113-67 as the sole statutory limitation on allowable employee compensation costs incurred on or after June 24, 2014. FAR also provides a link, which should assist one in finding the actual amounts of the “cap”; unfortunately, this link doesn’t actually link. Equally misleading (or at least of no help whatsoever), DCAA’s CAM (Contract Audit Manual) 6-414.7 includes a table on the Compensation Ceilings and with respect to 2015, DCAA lists it as “Not yet Established” (2015 is the last year listed in DCAA’s table).
Transparent or Invisible?
Although the Federal Government prides itself on transparency; the process for quietly posting the annual updates is transparent to the point of being invisible. Or in the words of the Captain (warden) in the movie Cool Hand Luke, “What we’ve got here is a failure to communicate”.
(Editor’s note: Thanks to a reader who took the time to initiate his own search for “Whatever happened to the promised annual increase to the statutory cap?”).
Redstone FAR Part 31 Cost Principles Course
The Redstone team offers a seminar to teach participants about the regulations governing cost accounting and allowability in government contacting. Let our experts educate your commercial organization’s management team on costs which are often misunderstood or misinterpreted. We also offer consulting to companies looking to improve compliance with contracts/subcontracts as well as contracts administration organization, whether acting on your behalf in the short term or to help you find an employed contracts specialist. 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.
Mike Steen is a Emeritus Advisor 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.