Department of Defense

Contractor Labor Rates

Currently per Federal Acquisition Regulation (FAR) 31.205-6(p)(1) there is a limitation on allowability of compensation for certain contractor personnel.


Specifically: Costs incurred after January 1, 1998, for compensation of a senior executive in excess of the benchmark compensation amount determined applicable for the contractor fiscal year by the Administrator, Office of Federal Procurement Policy (OFPP), under Section 39 of the OFPP Act (41 U.S.C. 435) are unallowable (10 U.S.C. 2324(e)(1)(P) and 41 U.S.C. 256(e)(1)(P)). This limitation is the sole statutory limitation on allowable senior executive compensation costs incurred after January 1, 1998, under new or previously existing contracts. This limitation applies whether or not the affected contracts were previously subject to a statutory limitation on such costs. (Note that pursuant to Section 804 of Pub. L. 105-261, the definition of “senior executive in (p)(2)(ii) has been changed for compensation costs incurred after January 1, 1999.)


However, there is no other specific limitation on the government contractor’s labor rates. As such, each government contractor submits rates, especially in the out years during forward pricing, that are “escalated” by a subjective factor. These rates are then negotiated before award and may be different for the same contractor for different contracts, let alone different contractors.


My idea is to tie the “allowable” cost for government contractor labor to the GS pay scale and thereby limited the amount of cost incurred on contracts to the amount the government is willing and able to pay civilian employees of the government.


I believe this would produce significant time savings during negotiation and monetary savings for the government in terms of contract cost.

I agree to have my idea, not my name or information, posted online. YES


Idea No. 8874