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1government contracting
@DHG_GovConDCMA Guidance Upon Compensation Blending Clarifications, Questions and ConcernsBill Walter, Partner DHGDavid Eck, Director DHG
Issues in Focus Webinar Series
2government contracting
@DHG_GovCon@DHG_GovConSpeaker Information
DavidEck,DirectorDHG(703)[email protected]
BillWalter,PartnerDHG(703)[email protected]
@DHG_GovCon
Date:May5th,2016Location:HyattRegencyinTysonswww.dhgllp.com/government-contracting-annual-update
3government contracting
@DHG_GovCon@DHG_GovConDiscussion Topics
• Historyofexecutivecompensationceilings• Priorchallengeswithusingblendedrates• Backgroundofcurrentcompensationceilings• Currentguidanceandpotentialchallenges• Questionsthatneedtobeanswered
4government contracting
@DHG_GovCon@DHG_GovConHistory from the 1990’s• ExComp wasquestionedinmanyDCAAaudits
– Nospecificcapsinregulation– Acaplimitstheamountofcompensationthatcanbeallocated– Acapdoesnotlimittheamountofcompensationacontractorcanpay
• CapswerefirstimplementedthroughDoDappropriationlaws
• FY1995Congressestablishedthefirstcap- $250k– Applicabletotop5executivesateachsegmentofcontractor– FutureNDAA’sintroduceddifferentcaps– in2013- $952k– LawimplementedinFAR31.205-6(p)
• ContractclauseatFAR52.216-7appliestheversionofFAR31.2ineffectatthetimeofcontract
• Retroactiveapplicationabreachofcontract(GDvs.USG,47FedCl.514)
5government contracting
@DHG_GovCon@DHG_GovConPrior Challenges with Using Blended Rates
• DCAAApril2,1997Guidance• ProvidedGuidanceonacceptablemethodsfordealingwithmultiplecompensationcaps
• Allowedfor– MultipleRates– RepresentativeRatewithAdjustments
• BlendedRateMethodwasconsideredunacceptable
6government contracting
@DHG_GovCon@DHG_GovCon2012 Changes to Cap Application
• NDAAFY2012retainedcapmethodbutexpandedapplication– Changedapplicabilityofcompensationcapfromtop5toallcontractoremployees
– Capamountestablishedfor2012($952k)retained– FinalFARRule(5/30/2014)implementednewlawwhichbroadenedapplicabilitytoallemployeesapplicabletoDoD,NASAandtheCoastGuardforcontractsawardedonorafterDecember31,2011
– Retroactiveapplicationisa“bigdeal”– RevisiontoFARapplicabletocontractsawardedafter6/26/2013
7government contracting
@DHG_GovCon@DHG_GovCon2013 Changes
• BipartisanBudgetActof2013:– ReducedthecompcapforDoDandNASAcontractsto$487kwithanannualescalationfactor(ECI)
– InterimFARRule(6/24/2014) implementedstatutorychangeforcontractsawardedonorafterJune24,2014forcompensationcostsincurredonorafterJune24,2014.
– RevisiontoFARonlyapplicabletocontractsawardedafter6/24/2014
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@DHG_GovCon@DHG_GovConIn summary…
• Contractorswillbesubjecttomultiplecapsoncurrentcontractssimultaneouslybasedoncontractawarddateandagency:– Before2012:
• AllUSGcontractsenteredintopriorto12/31/11subjectto$763,029capforFY2011and$693,951capforFY2010ontop5employees
– 2012,2013,partial2014(onlysomeagencies):• DoD,NASAandCoastGuardcontractsenteredintoafter12/31/11butbefore
6/24/2014subjectto$952kcaponallemployees($763,029for2011)• Nochangeforciviliancontracts,samerulesasbefore2012
– Partial2014andlater:• AllU.S.GovernmentcontractsenteredintoafterrevisedFARimplementing
BBA(June24,2014)subjectto$487kcaponallemployees
• OFPPhasnotyetpublished2013and2014(priortoJune24)limitations
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@DHG_GovCon@DHG_GovConDPAP Pricing Memo
• October24,2014• Recognizedthechallengesofmultiplecompensationcaps
• Objectiveto“simplifycompliancewhilecontinuingtoprotecttheinterestsoftheGovernment”
• Allowedacontractortoproposeablendedrateforinterimbillingandthenforestablishingactualrates
• RequiredadvanceagreementsperFAR31.109• Notmuchtraction
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@DHG_GovCon@DHG_GovConImplementing the FAR Provisions
• Potentialforsignificantadministrativeburden(andrelatedcosts)forboththecontractorandthegovernment
• Situationisagreatcandidateforastreamlinedregulatoryimplementationconsistentwithseveralcurrentgovernmentinitiatives– UseofatransitionmethodwillnotcreateanAntiDeficiencyAct
exposurebecausenoneofthecurrentcompcapsisbasedonstatutorylanguagelimitingtheuseofappropriatedfunds(asexistedpriorto1998)
• Industryrecommendsallowingcontractorstouseatransitionalimplementationthroughblendedrates– DoDGuidanceshouldbeissuedexpresslyprovidingforthismethod
• Establishdetails/optionswhichareconsistentacrosscontractors
– RecommendAdvanceAgreements(AA)forcontractorsselectingtheblendedmethod
11government contracting
@DHG_GovCon@DHG_GovConDCMA 1/29/2016 Guidance
• Follow-uptoDPAP10/24/14PricingMemo• GuidancedevelopedincoordinationwithDCAA• Allowsforuseofblendedratesatthecontractorsdiscretion
• Appliestofinaloverheadrates,andinterimbillingandforwardpricingrates
• Contractorrequiredtodemonstrateaccuracyofcalculationsandidentifyuniverseofcontracts
• ContractorsandCO’swill enterintoadvancedagreements.
12government contracting
@DHG_GovCon@DHG_GovConBlended Rate Methodology
• Calculateacompositecapamountforeachyeartobeusedindeterminingthewithdrawalofcomppriortocalculatingtheallowableindirectratestobeappliedtocontracts– Capamountforeachyearwouldbedeterminedbasedupon theweighted
averageoftheUSGbusinessvolumeatthecontractorbeforeandafter6/24/2014
– Therelativepercentagethatthenew$487kcapamountcontributestothecompositecapwould increaseovertimeasthebusinessmixshiftsfromoldcontracts(prior to6/24/14) tonewcontracts(after6/24/14)
– Allowsforanorderly transitionfromoldtonewcapinproportion tothecontractor’sshift inbusinessvolume
– Requiresdevelopmentofonlyonesetofratesandreliesonexistingprocessesatthecontractortoapplytheratestoallcontracts
– ProtectstheinterestsoftheGovernmentwhilekeeping theprocessassimpleaspossible
13government contracting
@DHG_GovCon@DHG_GovConIllustration – Final Rates
YearContractbefore
6/24/14Contractonorafter6/24/14 %old %new
Oldcap($k)
Newcap($k)
Blendedcap($k)
2014 900,000$ 100,000$ 90% 10% 952$ 487$ 906$
FinalOverheadRates
14government contracting
@DHG_GovCon@DHG_GovConIllustration – Forward Pricing
YearBacklogAlready
PricedContractbefore
6/24/14Contractonorafter6/24/14 %old %new
Oldcap($k)
Newcap($k)
Blendedcap($k)
2015 750,000$ 10,000$ 190,000$ 5% 95% 952$ 487$ 510.25$2016 500,000 10,000 490,000 2% 98% 952 487 496.302017 300,000 10,000 740,000 1% 99% 952 487 493.202018 150,000 10,000 840,000 1% 99% 952 487 492.472019 - 10,000 990,000 1% 99% 952 487 491.65
ForwardPricingRates
15government contracting
@DHG_GovCon@DHG_GovConQuestions that need to be answered
• Isblendingacostaccountingchange?• Mustallcontractorsusetheblendedratemethod?
• Istheblendedratealwaysofthe$952,308and$487,000amounts?
• Whichcontractsandsubcontractsareconsidered“affectedcontracts”?
• Howoftenwillblendedcompensationratesbecalculatedbythecontractor?
16government contracting
@DHG_GovCon@DHG_GovConQuestions that need to be answered
• HowareblendedratescalculatedforBasicOrderingAgreementsandIDIQcontracts?
• Howareblendedratescalculatedforcontractmodificationsandcontractoptions?
• WhatcoordinationisneededwithDCAA?• Whencanwestartusingblendedrates?
17government contracting
@DHG_GovCon
Questions?@DHG_GovCon
Issues in Focus Webinar Series
18government contracting
@DHG_GovCon@DHG_GovConJoin Us For..
• “FalseClaimsActCasesBeforetheSupremeCourt”onWednesday,April13th,11:00am
• The21st AnnualGovernmentContractingUpdate- NavigatingtheIssues:ARoadmaptoSuccessonMay5th,alldayCPEevent
