Increased Compensation Caps - Finally

On August 20, 2020, the Defense Contract Audit Agency (DCAA) issued an Audit Alert on Update to the Bipartisan Budget Act of 2013 (BBA) Contractor Compensation Caps – Calendar Years (CY) 2019 and 2020 (20-PSP-004(R)). 

The memorandum advises its personnel that while the Office of Federal Procurement Policy (OFPP) has not yet officially published CY 2019 and 2020 compensation caps, it has published guidance on how to properly calculate the cap amounts using Employment Cost Indexes (ECIs) from the Bureau of Labor Statistics (BLS).  As such, the effective compensation caps for CY 2018 – 2020 should be:

This guidance provides welcome relief to contractors preparing excess compensation calculations based on FAR Part 31.205-6(p) guidance using the lower threshold last officially published by the OFPP for 2018 of $525,000.  Given the late timing of the DCAA memo, many contractors will likely not be able to take advantage of the higher threshold for 2019.  Fortunately, many contractors should benefit from lower excess compensation disallowances for 2020 by using the increased cap.  Similarly, contractors with unapproved Incurred Cost Submissions for 2019 may find the higher cap amount for 2019 useful in lowering their overall cost disallowance and/or use the higher cap to offset any DCAA findings.

While the guidance does not extend beyond CY 2020, contractors may reasonably calculate the revised cap once the BLS ECI information becomes available.  Whether the government auditors will honor the calculations in the absence of further internal memorandums or official OFPP publications remains to be seen.