RGCI - Training is an Allowable Cost and Required for Government Contractors

Training and employee development, in our opinion, must be looked at as a necessary investment in the future of a business as well as the business’ key resource - its employees. That said, those businesses in the government contracting industry are also facing an ever-expanding list of required or at least expected training that is necessary to maintain compliance with their growing list of contract clauses.

Contract Requirements and Expectations for Training

This is by no means a complete list of the required or expected trainings. Only a briefing of all your awarded contracts can provide your specific requirements. However, we have identified many of the most common:

FAR Requirements

DOD Additional Requirements

DCAA Expectations

  • DCAA training expectations:
    • Annual Ethics Training;
    • Annual Labor Charging (i.e., Timekeeping) training with emphasis on the employee’s responsibility;
    • Annual Training of your policies and procedures for the employees responsible for implementing those policies and procedures; and
    • Pretty much anything related to their audit findings – most of the audit findings that go beyond simply questioning a cost (i.e., systems, internal controls, Cost Accounting Standards, etc.) include an expectation in the auditor’s recommendation for additional training by the contractor.

Many of these requirements apply even if all your contracts with the Federal Government are firm-fixed price or commercial FAR part 12.

What is the FAR Allowability Requirement for Training Costs?

FAR 31.205-44, Training and education costs, provides that:

Costs of training and education that are related to the field in which the employee is working or may reasonably be expected to work are allowable, except as follows:

(a)  Overtime compensation for training and education is unallowable.

(b)  The cost of salaries for attending undergraduate level classes or part-time graduate level classes during working hours is unallowable, except when unusual circumstances do not permit attendance at such classes outside of regular working hours.

(c)  Costs of tuition, fees, training materials and textbooks, subsistence, salary, and any other payments in connection with full-time graduate level education are unallowable for any portion of the program that exceeds two school years or the length of the degree program, whichever is less.

(d)  Grants to educational or training institutions, including the donation of facilities or other properties, scholarships, and fellowships are considered contributions and are unallowable.

(e)  Training or education costs for other than bona fide employees are unallowable, except that the costs incurred for educating employee dependents (primary and secondary level studies) when the employee is working in a foreign country where suitable public education is not available may be included in overseas differential pay.

(f)   Contractor contributions to college savings plans for employee dependents are unallowable.

The cost principle does not specifically address the growing list of contract clauses driving the required training. We do not believe a DCAA auditor is likely to question a cost related to a requirement that can be tracked directly to a contract clause – that said, we are a little concerned that the treatment of these costs as direct or indirect could become an audit issue. With DCAA’s mentality of “anything for a finding” (or in the code words used by the auditor “I am here to protect the taxpayer”), an auditor moving an indirect training cost to a fixed price contract could be seen as reasonable audit position as it reduces the recovery of the training costs incurred by the contractor.

What Does DCAA Say about Training Costs?

DCAA’s Selected Areas of Cost Chapter 71 – Training and Education Costs states “The allowability of a contractor’s training and education costs should be determined based on the provisions of FAR 31.205-44 and the reasonableness provisions of FAR 31.201-3.” It should be noted that we question some of the reasonableness guidance DCAA expounds. For example, it is unreasonable for a contractor to pay for an employee that happens to be a veteran to take a college course since they could have used their Veteran’s Administration benefits to cover the cost of the course. First, how material could that be and second, what in the heck audit procedures are they going to put the contractor though for that? Ok, let’s get back on topic.

DCAA has high expectation for a contractor’s “Training Program,” the program is expected to have the following:

  • A well-defined training program based on formal policies and procedures;
  • Criteria for determining employee eligibility and need for specific training courses or activities;
  • A monitoring process to assure regular attendance and adequate course performance by the personnel enrolled;
  • Evaluation of the suitability and sufficiency of each course of study or activity (e.g., relates to the field in which the employee is working or may reasonably be expected to work); and
  • Systematic post-training observation of the employee’s progress on the job in achieving learning objectives.

Yes, this is quite extensive and does not have a focus on the numerous requirements of many contract clauses. DCAA has been very focused on audit findings based on lack of supporting documentation. So, even if the training was contractually required, if the contractor’s “Training Program” did not document the expectations in the DCAA guidance – the auditor still may question the training costs based on the FAR 31.201-2(d) provision that the contracting officer may disallow all or part of a claimed cost that is inadequately supported.

Training Options for Government Contractors

Redstone GCI has created an affordable, subscription-based solution for employee awareness of government contract compliance expectations. Regular training of employee responsibilities regarding their performance under government contracts is a critical control required in all business system areas. An educated workforce illustrates the contractor’s commitment to compliance, provides an additional avenue for identifying employee concerns regarding potential non-compliances, and provides assurance that should a problem occur, the company has done its part to mitigate risks of non-compliance.

The Redstone GCI Learning Management System (LMS) is a turnkey solution for educating your employees on recurring compliance responsibilities and offers ease of use, value, and peace of mind for government contractors. Employee training is an essential element of developing a government compliance infrastructure. The use of courses accompanied by support from the Redstone GCI consulting team to develop compliant policies and procedures, while evaluating their effectiveness through recurring monitoring provides a total solution. This is important for maintaining your business system adequacy and providing effective risk mitigation from costly non-compliance problems.

Our LMS training material can be loaded into your existing learning management system or provide a commercial off the shelf solution to implementing a new learning management system. The system is developed to allow an entry level employee to work through an entire module or an experienced employee to quickly refer to a select area of one of the training modules to facilitate on-the-job training. The system tracks all enter actions by the employee to support the training expectations we outlined above. The training material is developed and reviewed by our Government Contract Compliance Team with significant amount of experience in expectations of Government auditors and reviewers.

Our Takeaway

A contractor with trained employees across its government contracting workforce is well positioned to support its compliance with the numerous government contracting specific compliance requirements and expectations.

Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s training requirements and maintaining an adequate training program. We would be happy to be part of your team.

Written by Redstone Team

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: Compliant Accounting Infrastructure, Small Business Compliance, Contracts & Subcontracts Administration, Government Compliance Training, DCAA Audit Support, Human Resources, Federal Acquisition Regulation (FAR), Organizational Change Management Consulting