Feds clarify rule on bonuses

Proposed Rule on Signing and Retention Bonuses for High Technology Workers

Federal officials are proposing to explicitly allow government contractors to award bonuses to technical and other critically skilled employees to attract and retain them.

The proposed clarification to the Federal Acquisition Regulation would put into writing a practice that has been used for years. Federal contractors often give signing and retention bonuses to employees in positions that are difficult to fill — such as those in the information technology industry — to keep up with the perks offered by other companies.

"Contractors have told me of their difficulties in competing with predominantly nongovernment firms to attract and retain personnel with critical technical skills," said Deidre Lee, director of procurement at the Defense Department. "While signing bonuses for difficult-to-fill positions and retention allowances for essential employees are already allowable costs on government contracts, this rule will make that allowability explicit in the FAR."

The FAR does not prohibit this practice specifically, and most IT companies already offer their employees "some sort of bonus or stock option" as part of their compensation plan, said Chip Mather, senior vice president of Acquisition Solutions Inc., a federal contracting consulting firm. The cost of those bonuses is usually figured into a company's overhead costs for the project.

According to federal officials, there has been no rash of complaints to DOD, the General Services Administration or NASA, the three agencies that make up the FAR Secretariat. But a study conducted by the Defense Science Board, a group of industry advisers reporting to the undersecretary of Defense for acquisition, technology and logistics, found that contractors often were questioned or penalized in audits for using bonuses.

"The problems came up in the compensation audits.... Depending on who is doing the audit, some are more lenient and others get very picky and detailed about the methods the contractor is using," said Phil Odeen, chairman of the science board's task force on the study. "There was enough confusion and concern out there that we felt it was important to clarify."

In the end, the proposed amendment should not have any major cost impact on the government, officials said. Comments are due by Feb. 26 to the FAR Secretariat.

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