Contractors looking for updates to the statutory allowable cost limits on employee compensation may be looking in the wrong place. But what was once lost can easily be found, at least for the moment, by simply navigating to a different website.
The Cost Principles and the Compensation Cap
FAR 31.205-6(p)(4) governs the allowable compensation of contractor and subcontractor employees. It promulgates section 702 of the Bipartisan Budget Act of 2013 (“BBA”), which set an initial limit on allowable contractor and subcontractor employee compensation costs at $487,000 per year. “Compensation” is defined broadly to include the total amount of wages, salary, bonuses, deferred compensation, and employer contributions to defined contribution pension plans. According to the BBA, the cap is to be adjusted annually based on the Employment Cost Index calculated by the Bureau of Labor Statistics. The BBA repealed the prior existing formula for determining the relevant compensation cap under 41 U.S.C. § 1127 and applies to contracts awarded on or after June 24, 2014. It also provided agencies with the authority to establish “one or more narrowly targeted exceptions” for certain specialists.
Procedure and Publication of the Cap
The FAR Council published an interim rule in the Federal Register pursuant to section 702 of the BBA on June 24, 2014, providing the public with an opportunity to comment on its proposed text. It incorporated public comments and published a Final Rule on September 30, 2016. The practice of providing public notice of the relevant compensation caps was consistent with the practice under the BBA’s predecessor statute.
The Final Rule clarified that the BBA’s compensation cap “does not apply retroactively to contracts awarded before June 24, 2014.” (Such contracts are governed by a separate framework). According to the Final Rule, the administrator for the Office of Federal Procurement Policy (“OFPP”), within the Office of Management and Budget, is responsible for adjusting the compensation cap annually.
Whither the Compensation Cap?
Experienced contractors reasonably anticipated that annual increases under the BBA would, like the compensation cap increases under its predecessor, continue to be posted in the Federal Register for public notice. The OFPP, instead, only recently posted the annual increases for costs incurred in 2015-2018 on its website instead of publication through the Federal Register.
It is unclear why OMB departed from its practice of publishing the compensation cap in the Federal Register—and whether the change is permanent. But for the moment, contractors seeking the appropriate compensation cap should monitor the OFPP website.