[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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