[Federal Register Volume 81, Number 50 (Tuesday, March 15, 2016)]
[Notices]
[Pages 13833-13834]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-05766]
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OFFICE OF MANAGEMENT AND BUDGET
Office of Federal Procurement Policy; Determination of Statutory
Formula Benchmark Compensation Amount for Certain Executives and
Contractor Employees
AGENCY: Office of Federal Procurement Policy, Office of Management and
Budget.
ACTION: Notice.
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SUMMARY: The Office of Management and Budget is publishing the attached
memorandum to the Heads of Executive Departments and Agencies
announcing that the ``benchmark compensation amount'' for certain
executives and contractor employees in terms of costs allowable under
Federal Government covered contracts during the contractor's fiscal
years 2013 and 2014 is $980,796 and $1,144,888, respectively. These
statutory formula cap determinations are required under Section 39 of
the Office of Federal Procurement Policy Act, as amended (41 U.S.C.
1127). These benchmark compensation amounts apply to both defense and
civilian agencies for their respective applicable periods, but only for
contracts awarded before June 24, 2014.
FOR FURTHER INFORMATION CONTACT: Raymond Wong, Office of Federal
Procurement Policy, at 202-395-6805.
Anne E. Rung,
Administrator, Office of Federal Procurement Policy.
MEMORANDUM FOR THE HEADS OF EXECUTIVE DEPARTMENTS AND AGENCIES
FROM: Anne E. Rung, Administrator, Office of Federal Procurement
Policy.
SUBJECT: Determination of the Statutory Formula Benchmark Compensation
Amount for Fiscal Years 2013 and 2014 for Certain Executives and
Contractor Employees, Pursuant to Section 39 of the Office of Federal
Procurement Policy Act, as amended (41 U.S.C. 1127)
This memorandum sets forth the benchmark compensation amount for
certain employees of Federal Government contractors as required by
Section 39 of the Office of Federal Procurement Policy (OFPP) Act, as
amended (41 U.S.C. 1127, otherwise known as the statutory formula cap)
for the cost allowability purposes of section 4304(a)(16) of title 41
and section 2324(e)(1)(P) of title 10 for covered contracts awarded
before June 24, 2014. For covered contracts awarded on or after June
24, 2014, a new cap applies pursuant to section 702 of the Bipartisan
Budget Act of 2013 (BBA), Pub. L. 113-67, December 26, 2013.
For contracts awarded prior to June 24, 2014, section 1127 limits
the reimbursement or allowability of compensation costs under Federal
Government contracts as implemented at Federal Acquisition Regulation
(FAR) 31.205-6(p). In less technical terms, the statutory formula cap
places a ceiling on the total annual compensation costs the Federal
Government will reimburse a contractor for the compensation package the
contractor provides to certain of its employees for work done pursuant
to certain Federal Government covered contracts. This statutory formula
cap applies to limit the reimbursement of the compensation costs of
certain contractor senior executives on covered contracts with civilian
and defense agencies. Additionally, as a result of changes made by
section 803 of the National Defense Authorization Act for FY 2012,
Public Law 112-81, December 31, 2011, for covered contracts with
defense agencies (i.e., DOD, NASA and Coast Guard), the statutory
formula cap was expanded to cover all other contractor employees and
applies to the compensation costs incurred after
[[Page 13834]]
December 31, 2011. With both civilian and defense agencies, the
statutory formula cap applies only when the contractor is performing
covered contracts that are of either a cost-reimbursable nature or
other cost-based nature.
Section 1127 sets out a formula for determining the cap amount.
Specifically, the statutory formula cap amount is set at the median
(50th percentile) amount of compensation provided, over the most recent
year for which data is available, to the five most highly compensated
employees in management positions at each home office and each segment
of all publicly-owned U.S. companies with annual sales over $50
million. The determination is based on analysis of data made available
by the Securities and Exchange Commission. Compensation means the total
amount of wages, salaries, bonuses, restricted stock, deferred and
performance incentive compensation, and other compensation for the
year, whether paid, earned, or otherwise accruing, as recorded in the
employer's cost accounting records for the year.
Since enactment of the statutory formula in 1998, the cap has
increased more than 300%. In 2010, the President began calling on
Congress to replace the current statutory formula cap with a lower,
more sensible limit that is on par with what the Government pays its
own executives and employees. In December 2013, with the
Administration's strong support, Congress reformed the ceiling on the
reimbursement of contractor employee compensation. Section 702 of the
BBA replaced section 1127 with a new cap of $487,000 to be adjusted
annually to reflect the change in the Employment Cost Index for all
workers as calculated by the Bureau of Labor Statistics (otherwise
known as the BBA cap). The new $487,000 BBA cap provides a reasonable
level of compensation for high value Federal contractor employees while
ensuring taxpayers are not saddled with paying excessive compensation
costs. On June 24, 2014, the Federal Acquisition Regulatory Council
issued an interim rule to amend the Federal Acquisition Regulation to
reflect the new BBA cap and issuance of a final rule is pending.
However, the new $487,000 BBA cap applies on a prospective basis only
to contracts awarded on or after June 24, 2014. Because the statutory
formula cap continues to apply to contracts awarded before June 24,
2014, the Administration is compelled by statute to determine the
statutory formula cap amount for FYs 2013 and 2014 in accordance with
the statutory formula set forth in section 1127 to address these pre-
existing contracts.
After consultation with the Director of the Defense Contract Audit
Agency, OFPP has determined, pursuant to the requirements of section
1127, that the statutory formula cap amount for the ceiling on the
compensation of a contractor employee covered by this provision is
$980,796 for FY 2013, and $1,144,888 for FY 2014. Each of these
statutory formula cap amounts applies to limit the reimbursement, by
the Government to the contractor, of the costs of compensation for
certain contractor employees for costs incurred on all covered
contracts, at the beginning of the contractor FY that begins January 1
for the respective year (or pro-rated over that portion of the
contractor FY that includes January 1 for the respective year). The
statutory formula cap amount (i.e., $980,796) for FY 2013 is applicable
to compensation costs incurred on all covered contracts during the
period of January 1, 2013 through December 31, 2013 for the
contractor's fiscal year. The statutory formula cap amount (i.e.,
$1,144,888) for FY 2014 is applicable on all covered contracts to
compensation costs incurred as of January 1, 2014 and continues in
subsequent contractor FYs, unless and until revised by OFPP. As
explained above, this statutory formula cap applies only to covered
contracts awarded before June 24, 2014 for both defense and civilian
procurement agencies to limit the reimbursement of the compensation
costs for certain contractor employees.
Employers continue to have the discretion to compensate their
employees at any level they deem appropriate. The statutory formula cap
only limits how much the Government will reimburse the contractors for
the services of those affected employees.
Questions concerning this memorandum may be addressed to Raymond
Wong, OFPP, at 202-395-6805.
[FR Doc. 2016-05766 Filed 3-14-16; 8:45 am]
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