For Notes and Information in Differential and Danger Pay + other pay options for negotiations as a contractor.
Source: http://www.dcaa.mil/mmr/m04ppd023.pdf
Survey Results and Guidance to Evaluate Specific Elements of Compensation
The 37 contractors offered varying combinations of allowances, differentials, bonuses, or
miscellaneous benefits, in addition to the base pay for the work performed in Iraq. A summary
of the regional responses for each specific pay element, along with related audit guidance, is
discussed below. Overall, many contractors (30) offered both hardship pay differentials and
danger pay allowances to their deployed U.S. employees and non-U.S. (e.g., United Kingdom,
Canada, Australia) employees. Four contractors offered only one of the two; and three
contractors offered neither hardship nor danger pay to the deployed employees. Rest and
relaxation (R&R) allowances and assignment completion bonuses were offered in varying
degrees by approximately 50 percent of the contractors to their deployed overseas employees.
Additionally, approximately 33 percent of the contractors offered deployed employees a foreign
service premium or allowance. Lastly, in a limited number of instances, employees were
provided a sign-on bonus or other unique bonuses, benefits, and allowances. A discussion of
these specific elements follows.
1. Hardship Pay Differential. Most contractors justified providing the deployed employees with
hardship pay differential due to the known difficult living conditions they would be working
under. The Department of State Standardized Regulations (DSSR)
(http://www.state.gov/m/a/als/c1843.htm), which provides guidance on Government employee
overseas differentials and allowances, was cited by 12 of the contractors as the basis for
justifying these costs. However, the statistics that follow demonstrate that contractors did not
adopt the DSSR specific percentage allowance or the salary base to which the percentage
allowance was applied. The DSSR hardship pay differential for Iraq is 25 percent of an
employee’s base pay, calculated on a 40 hour work week. In addition to the 12 contractors
mentioned above, the survey results noted that 10 contractors with U.S. Agency for International
Development (USAID) contracts are required to follow the DSSR. This is in accordance with
the USAID Acquisition Regulations (AIDAR) (http://www.usaid.gov/business/regulations/) that
specifies the use of the DSSR allowance provisions in all USAID cost reimbursement contracts
performed in whole or in part overseas.
Shown below is a summary of the 37 contractors and the basis they use to calculate
employee hardship pay.
# of Contractor(s) Calculation of Hardship Pay
14 25% times base pay (where the base is a 40 hour week)
6 20% times base pay (where the base is a 40 hour week)
3 25% times base pay (where the base is a 60 hour, 48 hour, or 6 day
week)
5 Use varying percentages ranging from 20% to 35% using either
total pay, in-country pay, base pay plus overtime, or base pay plus
weekend pay
5 Do not offer hardship pay
4 Use varying combinations of the above depending on the contractPPD 730.5.45.1 April 12, 2004
SUBJECT: Audit Guidance on Compensation Costs for Contractor Employees Located in
Foreign Countries and Performing Work under Iraq Reconstruction Contracts
4
As shown by the statistics above, 25 of the 37 contractors offer hardship pay equal to or
less than the DSSR. For those contractors with USAID cost reimbursement contracts, verify that
the contractor is following the hardship pay provisions of the DSSR for those employees located
in Iraq. Since the predominant industry practice for the deployed contractor employees working
on non-USAID contracts is to cite the DSSR as the basis for the hardship pay differential,
auditors should evaluate contractors offering a hardship pay differential in excess of the DSSR
hardship pay differential of 25 percent of base pay, calculated on a 40 hour work week. Review
the contractor’s hardship pay policy and practices, the basis to calculate hardship pay, the
deployed employees’ compensation agreements, and consider factors determined to be relevant
by the contracting officer. In cases where there is inadequate contractor support to justify
hardship payments beyond the DSSR allowances, challenges to these costs should be made in
accordance with FAR 31.205-6(b) because the costs exceed compensation practices of other
firms in the same geographic area (i.e., Iraq). In accordance with FAR 31.201-3(a), the burden
of proof is then upon the contractor to establish that such a cost is reasonable.
2. Danger Pay Allowance. Most contractors justify providing the deployed employees with
danger pay due to known dangerous conditions. As with the hardship pay differential, the DSSR
was cited by 12 contractors as the basis for justifying the payment of danger pay. The DSSR
danger pay allowance for Iraq is 25 percent of an employee’s base pay, calculated on a 40 hour
work week. In addition to the above 12 mentioned contractors, the survey results noted that
10 contractors with USAID contracts are required to follow the DSSR. Contractors offer danger
pay allowances to their U.S. and non-U.S. employees. Shown below is a summary of responses
for the 37 contractors and the basis used to calculate employee danger pay.
# of Contractor(s) Calculation of Danger Pay
18 25% times base pay (where the base is a 40 hour week)
3 25% times base pay (where the base is a 60 hour, 48 hour, or 6 day
week)
8 Use varying percentages ranging from 15% to 25% using either
total pay, base pay plus overtime, base pay plus overtime and
G&A, or base pay plus weekend pay
4 Do not offer danger pay
4 Use varying combinations of the above depending on the contract
As shown above, 22 of the 37 contractors offer danger pay equal to or less than the
DSSR. For those contractors with USAID cost reimbursement contracts performed in whole or
in part overseas, verify that they are following the danger pay provisions of the DSSR. For those
non-USAID contracts, auditors should perform an evaluation of contractors offering their
deployed employees a danger pay allowance in excess of the DSSR danger pay allowance of
25 percent of base pay, calculated on a 40 hour work week. Review the contractor’s danger pay
policy and practices, the basis to calculate the danger pay, the deployed employees’
compensation agreements, and consider factors determined to be relevant by the contracting
officer. In cases where there is inadequate contractor support to justify danger pay allowances
beyond the DSSR allowances, challenges to these costs should be made in accordance with
FAR 31.205-6(b) because the costs exceed compensation practices of other firms in the same PPD 730.5.45.1 April 12, 2004
SUBJECT: Audit Guidance on Compensation Costs for Contractor Employees Located in
Foreign Countries and Performing Work under Iraq Reconstruction Contracts
5
geographic area (i.e., Iraq). In accordance with FAR 31.201-3(a), the burden of proof is then
upon the contractor to establish that such a cost is reasonable.
3. Sign-On Bonus. Most contractors (33) did not offer a sign-on bonus. In the four instances
where it was offered, it was based on special circumstances (e.g., the need to have employees
and/or essential positions deployed to Iraq in a very limited timeframe).
In those instances when sign-on bonuses are offered to deployed contractor employees,
auditors should review the contractor’s sign-on bonus policy and practices, the basis to calculate
the sign-on bonus, the deployed employees’ compensation agreements, and consider factors
determined to be relevant by the contracting officer. Verify that reasons for providing a sign-on
bonus are justified and based on special circumstances. Challenges to contractor sign-on
bonuses should also be made if contractor provided justification and documentary support are
deemed inadequate. In accordance with FAR 31.201-3(a), the burden of proof shall then be upon
the contractor to establish that such a cost is reasonable.
4. Rest and Relaxation (R&R) Allowance. According to the survey results, the Iraq contractors
justified providing deployed employees an R&R allowance in order to maintain employee
performance and as a common industry and Government practice. Contractors offer R&R
allowances to both their U.S. and non-U.S. citizen employees. Shown below is a summary of the
37 contractors’ R&R allowance. For 23 of these contractors, all of their deployed employees
were U.S. employees. The following is a summarization of the responses.
# of Contractor(s) Calculation of R&R Allowances
17 Do not offer a rest and relaxation allowance
8 One trip per year (usually to CONUS)
4 One trip per year (destination not provided)
6 Four trips per year (two to CONUS and two to nearby countries)
2 Use varying combinations of the above, depending on the contract
As shown above, 29 of the 37 contractors either did not offer rest and relaxation
allowances or limited them to one trip per year. For contractors offering R&R allowances of
more than one trip per year, auditors should review the contractor’s R&R policy and practices,
the basis to qualify for this allowance (e.g., nationality or job), the deployed employees’
compensation agreements, and consider factors determined to be relevant by the contracting
officer. Verify that reasons for rest and relaxation are justified to maintain employee
performance or morale and are based on common industry and/or Government practices.
Challenges should be made to a contractor’s rest and relaxation allowance if support for trips in
excess of one per year is deemed inadequate when compared to known overseas contractor
practices for work performed in Iraq, as indicated by the regional data. In accordance with
FAR 31.201-3(a), the burden of proof shall then be upon the contractor to establish that the R&R
cost is reasonable.PPD 730.5.45.1 April 12, 2004
SUBJECT: Audit Guidance on Compensation Costs for Contractor Employees Located in
Foreign Countries and Performing Work under Iraq Reconstruction Contracts
6
5. Assignment Completion Bonus. Contractors justified providing deployed employees an
assignment completion bonus as a common industry practice and necessary for retention of U.S.
and non-U.S. citizen employees for essential positions in Iraq. Below is a summary of the
responses received on the 37 contractors’ assignment completion bonuses being offered. The
FAOs surveyed indicated that, at the time of their reviews, generally the contractors that
provided this additional compensation had no written policy governing its implementation. Also,
the responses indicate that the contractor’s basis used to calculate the completion bonus may
include costs unrelated to the nature of the completion bonus (e.g., basis included travel costs).
The following is a summarization of the responses.
# of Contractor(s) Calculation of Assignment Completion Bonus
17 Do not offer an assignment completion bonus
8 8%-35% times base pay (based on between 40 – 60 hours per
week)
5 $10,000 bonus (4); $3,250 to $5,000 bonus (1)
2 10% times base pay plus overtime and travel costs
1 60% times total pay
1 10% times total Pay
3 Use varying combinations of the above, depending on the contract
As shown above, 17 of the contractors do not offer an assignment completion bonus. For
contractors that offered assignment completion bonuses, auditors should review the contractor’s
assignment completion bonus policy and practices, the basis to qualify for this bonus (e.g.,
completion of employment agreement term or completion of certain defined and verifiable
tasks), the basis to calculate the bonus, the deployed employees’ compensation agreements, and
consider factors determined to be relevant by the contracting officer. Verify that reasons for
using an assignment completion bonus are justified (e.g., to maintain employee retention, to
complete critical work, or due to common industry practices). In addition, completion bonuses
are not allowable if they are not in compliance with FAR 31.205-6(f)(1) wherein they should be
paid or accrued under an agreement entered into in good faith between the contractor and the
employees before the services are rendered or pursuant to an established plan or policy followed
by the contractor so consistently as to imply, in effect, an agreement to make such payment.
Auditors should also challenge the contractor's bases for calculating and paying the bonus if they
seem incongruent with the nature of the bonus. In accordance with FAR 31.201-3(a), the burden
of proof is then upon the contractor to establish that such a cost is reasonable and necessary for
the performance of the contract.
6. Foreign Service Premium or Allowance. Contractors justified providing deployed employees
a foreign service premium or allowance based on the additional expenses the employees incur as
a result of performing work in a foreign country. Shown below is a summary of the responses
for the 37 contractors and the basis used to calculate the foreign service premium or allowance.PPD 730.5.45.1 April 12, 2004
SUBJECT: Audit Guidance on Compensation Costs for Contractor Employees Located in
Foreign Countries and Performing Work under Iraq Reconstruction Contracts
7
# of Contractor(s) Basis to Calculate a Foreign Service Premium or Allowance
25 Do not offer a foreign service premium or allowance
8 15% times base pay (where the base is between 40-60 hours week)
2 25% times base pay (where the base is between 40-48 hours week)
1 5% times base pay (where the base is a 40 hour week)
1 15% times total pay
As shown above, 25 of the 37 contractors did not offer a foreign service premium or
allowance. Auditors should review the contractor’s foreign service premium or allowance policy
and practices, the basis to qualify for this premium or allowance (e.g., nationality or job), the
basis to calculate the premium or allowance, the deployed employees’ compensation agreements,
and consider factors determined to be relevant by the contracting officer. Verify that reasons for
providing the service premium or allowance are justified as a result of documented additional
expenses for the employee’s duty in a foreign country. Ensure that the expense properly reflects
the period of time of the deployment and the nature of the anticipated employee expenses (i.e.,
whether they are of a continuing nature or a one-time reimbursement). Additionally, determine
that the allowance does not duplicate any other contractor provided differential or allowance
under another name or intent. Auditors should challenge any foreign service premium that is not
adequately supported by the contractor. In accordance with FAR 31.201-3(a), the burden of
proof then falls upon the contractor to establish that this cost is reasonable.
7. Miscellaneous Bonuses, Benefits, and Allowances. The survey responses also highlighted
other miscellaneous bonuses, benefits, and allowances that are similar in nature to those
previously explained above. In some cases, the responses did not include the contractor’s bases
for calculating the item. These miscellaneous items are:
Management Performance Bonus (2 contractors) - 30% times base pay where the base
is a 40 hour week
Key Management Performance Bonus (1 contractor) - 10% to 20% times base pay
where the base is a 40 hour week
Performance Bonus (3 contractors) – one contractor offered a maximum of $2,000;
another offered 10% times total pay; a third offered 3% to 5% times base pay where
the base is a 40 hour week
Program Completion Bonus (1 contractor) – 5% times base pay where the base pay is
a 40 hour week
Holiday Pay (1 contractor)
Clothing Allowance (2 contractors)
Separate Maintenance Allowance (2 contractors)
Cost of Living Allowance (1 contractor) – 20% times base pay where the base pay is
a 40 hour week
Per Diem (2 contractors) – approximately $40 per day at one; the other offered
$50 per day
Special Pay (2 contractors) – 20% times base pay (40 hour week) to handle
munitions; 25% times base pay (40 hour week) for mission essential personnel
Post Allowance (1 contractor) – 60% times spendable incomePPD 730.5.45.1 April 12, 2004
SUBJECT: Audit Guidance on Compensation Costs for Contractor Employees Located in
Foreign Countries and Performing Work under Iraq Reconstruction Contracts
8
As shown above, no more than 3 of the 37 contractors offer any given miscellaneous
bonus, benefit, or allowance. When these items are offered, auditors should review the
contractor’s bonuses, benefits, and allowances policy and practices; the basis to qualify (e.g.,
nationality or job, special circumstances); the basis to calculate the bonus, benefit, or allowance;
the deployed employees’ compensation agreements, and consider factors determined to be
relevant by the contracting officer. Verify that the reasons identified for making the payments
are justified and that they do not duplicate any other contractor provided differential or
allowance. Challenge a contractor provided bonus, benefit, or allowance based on factors not
determined to be relevant by the contracting officer, or if support is deemed inadequate when
compared to other known overseas contractor practices as indicated above. In accordance with
FAR 31.201-3(a), the burden of proof shall then be upon the contractor to establish that such a
cost is reasonable.
Guidance to Evaluate the Aggregate of the Elements of Employee Compensation
While the guidance provided above addresses the individual elements of compensation
that are being offered and paid to contractor employees performing work in Iraq, FAR 31.205-
6(b)(2) provides that employee compensation must be reasonable for the work performed, and is
reasonable if the aggregate of each measurable and allowable element sums to a reasonable total.
Implied in total compensation reasonableness is the concept of offsets between otherwise
allowable employee compensation elements, such as base pay, bonuses, differentials, and
allowances. CAM 6-413.7 provides guidance related to compensation offsets. By using offsets,
a contractor can demonstrate that, in total, the cost of the compensation package is reasonable
despite the fact that one element of compensation may be outside the general norm or higher than
compensation practices of other firms (i) of the same size; (ii) in the same industry; (iii) in the
same geographic area; and (iv) engaged in similar non-government work under comparable
circumstances.
When offsets are claimed in response to auditor challenges of reasonableness of a
compensation element, a determination has to be made on the acceptability of the contractor’s
demonstration of its policy, practice, and/or rationale for their use for offset purposes. For
example, when a contractor is challenged as to the reasonableness of their foreign service
allowance, and the contractor proposes in response to this challenge an offset using a completion
bonus which they do not offer but 50 percent of the contractors in Iraq do, then the contractor
must demonstrate an acceptable rationale for it to be considered. In this instance, for example,
the contractor may be able to reasonably justify the higher level of foreign service allowance by
demonstrating that their total compensation package achieves the same objective as if they
offered a completion bonus (e.g., successful retention of employees). Thus, due to the unique
circumstances, mission requirements, and working conditions throughout Iraq and neighboring
countries for the reconstruction contracts, auditors need to consider the reasonableness of
contractor-provided rationale and documented support for offsets on a case by case basis. As a
result, auditors should coordinate with the contracting officer and their regional special programs
office to ensure all matters are considered prior to questioning deployed employee compensation
costs.PPD 730.5.45.1 April 12, 2004
SUBJECT: Audit Guidance on Compensation Costs for Contractor Employees Located in
Foreign Countries and Performing Work under Iraq Reconstruction Contracts
Other References:
https://www.evernote.com/shard/s36/sh/900a25e3-b8e7-452d-a03c-2f3e6eb4594f/b89b7b75937609cf9aed5559b79b64f2
Source: http://www.dcaa.mil/mmr/m04ppd023.pdf
Survey Results and Guidance to Evaluate Specific Elements of Compensation
The 37 contractors offered varying combinations of allowances, differentials, bonuses, or
miscellaneous benefits, in addition to the base pay for the work performed in Iraq. A summary
of the regional responses for each specific pay element, along with related audit guidance, is
discussed below. Overall, many contractors (30) offered both hardship pay differentials and
danger pay allowances to their deployed U.S. employees and non-U.S. (e.g., United Kingdom,
Canada, Australia) employees. Four contractors offered only one of the two; and three
contractors offered neither hardship nor danger pay to the deployed employees. Rest and
relaxation (R&R) allowances and assignment completion bonuses were offered in varying
degrees by approximately 50 percent of the contractors to their deployed overseas employees.
Additionally, approximately 33 percent of the contractors offered deployed employees a foreign
service premium or allowance. Lastly, in a limited number of instances, employees were
provided a sign-on bonus or other unique bonuses, benefits, and allowances. A discussion of
these specific elements follows.
1. Hardship Pay Differential. Most contractors justified providing the deployed employees with
hardship pay differential due to the known difficult living conditions they would be working
under. The Department of State Standardized Regulations (DSSR)
(http://www.state.gov/m/a/als/c1843.htm), which provides guidance on Government employee
overseas differentials and allowances, was cited by 12 of the contractors as the basis for
justifying these costs. However, the statistics that follow demonstrate that contractors did not
adopt the DSSR specific percentage allowance or the salary base to which the percentage
allowance was applied. The DSSR hardship pay differential for Iraq is 25 percent of an
employee’s base pay, calculated on a 40 hour work week. In addition to the 12 contractors
mentioned above, the survey results noted that 10 contractors with U.S. Agency for International
Development (USAID) contracts are required to follow the DSSR. This is in accordance with
the USAID Acquisition Regulations (AIDAR) (http://www.usaid.gov/business/regulations/) that
specifies the use of the DSSR allowance provisions in all USAID cost reimbursement contracts
performed in whole or in part overseas.
Shown below is a summary of the 37 contractors and the basis they use to calculate
employee hardship pay.
# of Contractor(s) Calculation of Hardship Pay
14 25% times base pay (where the base is a 40 hour week)
6 20% times base pay (where the base is a 40 hour week)
3 25% times base pay (where the base is a 60 hour, 48 hour, or 6 day
week)
5 Use varying percentages ranging from 20% to 35% using either
total pay, in-country pay, base pay plus overtime, or base pay plus
weekend pay
5 Do not offer hardship pay
4 Use varying combinations of the above depending on the contractPPD 730.5.45.1 April 12, 2004
SUBJECT: Audit Guidance on Compensation Costs for Contractor Employees Located in
Foreign Countries and Performing Work under Iraq Reconstruction Contracts
4
As shown by the statistics above, 25 of the 37 contractors offer hardship pay equal to or
less than the DSSR. For those contractors with USAID cost reimbursement contracts, verify that
the contractor is following the hardship pay provisions of the DSSR for those employees located
in Iraq. Since the predominant industry practice for the deployed contractor employees working
on non-USAID contracts is to cite the DSSR as the basis for the hardship pay differential,
auditors should evaluate contractors offering a hardship pay differential in excess of the DSSR
hardship pay differential of 25 percent of base pay, calculated on a 40 hour work week. Review
the contractor’s hardship pay policy and practices, the basis to calculate hardship pay, the
deployed employees’ compensation agreements, and consider factors determined to be relevant
by the contracting officer. In cases where there is inadequate contractor support to justify
hardship payments beyond the DSSR allowances, challenges to these costs should be made in
accordance with FAR 31.205-6(b) because the costs exceed compensation practices of other
firms in the same geographic area (i.e., Iraq). In accordance with FAR 31.201-3(a), the burden
of proof is then upon the contractor to establish that such a cost is reasonable.
2. Danger Pay Allowance. Most contractors justify providing the deployed employees with
danger pay due to known dangerous conditions. As with the hardship pay differential, the DSSR
was cited by 12 contractors as the basis for justifying the payment of danger pay. The DSSR
danger pay allowance for Iraq is 25 percent of an employee’s base pay, calculated on a 40 hour
work week. In addition to the above 12 mentioned contractors, the survey results noted that
10 contractors with USAID contracts are required to follow the DSSR. Contractors offer danger
pay allowances to their U.S. and non-U.S. employees. Shown below is a summary of responses
for the 37 contractors and the basis used to calculate employee danger pay.
# of Contractor(s) Calculation of Danger Pay
18 25% times base pay (where the base is a 40 hour week)
3 25% times base pay (where the base is a 60 hour, 48 hour, or 6 day
week)
8 Use varying percentages ranging from 15% to 25% using either
total pay, base pay plus overtime, base pay plus overtime and
G&A, or base pay plus weekend pay
4 Do not offer danger pay
4 Use varying combinations of the above depending on the contract
As shown above, 22 of the 37 contractors offer danger pay equal to or less than the
DSSR. For those contractors with USAID cost reimbursement contracts performed in whole or
in part overseas, verify that they are following the danger pay provisions of the DSSR. For those
non-USAID contracts, auditors should perform an evaluation of contractors offering their
deployed employees a danger pay allowance in excess of the DSSR danger pay allowance of
25 percent of base pay, calculated on a 40 hour work week. Review the contractor’s danger pay
policy and practices, the basis to calculate the danger pay, the deployed employees’
compensation agreements, and consider factors determined to be relevant by the contracting
officer. In cases where there is inadequate contractor support to justify danger pay allowances
beyond the DSSR allowances, challenges to these costs should be made in accordance with
FAR 31.205-6(b) because the costs exceed compensation practices of other firms in the same PPD 730.5.45.1 April 12, 2004
SUBJECT: Audit Guidance on Compensation Costs for Contractor Employees Located in
Foreign Countries and Performing Work under Iraq Reconstruction Contracts
5
geographic area (i.e., Iraq). In accordance with FAR 31.201-3(a), the burden of proof is then
upon the contractor to establish that such a cost is reasonable.
3. Sign-On Bonus. Most contractors (33) did not offer a sign-on bonus. In the four instances
where it was offered, it was based on special circumstances (e.g., the need to have employees
and/or essential positions deployed to Iraq in a very limited timeframe).
In those instances when sign-on bonuses are offered to deployed contractor employees,
auditors should review the contractor’s sign-on bonus policy and practices, the basis to calculate
the sign-on bonus, the deployed employees’ compensation agreements, and consider factors
determined to be relevant by the contracting officer. Verify that reasons for providing a sign-on
bonus are justified and based on special circumstances. Challenges to contractor sign-on
bonuses should also be made if contractor provided justification and documentary support are
deemed inadequate. In accordance with FAR 31.201-3(a), the burden of proof shall then be upon
the contractor to establish that such a cost is reasonable.
4. Rest and Relaxation (R&R) Allowance. According to the survey results, the Iraq contractors
justified providing deployed employees an R&R allowance in order to maintain employee
performance and as a common industry and Government practice. Contractors offer R&R
allowances to both their U.S. and non-U.S. citizen employees. Shown below is a summary of the
37 contractors’ R&R allowance. For 23 of these contractors, all of their deployed employees
were U.S. employees. The following is a summarization of the responses.
# of Contractor(s) Calculation of R&R Allowances
17 Do not offer a rest and relaxation allowance
8 One trip per year (usually to CONUS)
4 One trip per year (destination not provided)
6 Four trips per year (two to CONUS and two to nearby countries)
2 Use varying combinations of the above, depending on the contract
As shown above, 29 of the 37 contractors either did not offer rest and relaxation
allowances or limited them to one trip per year. For contractors offering R&R allowances of
more than one trip per year, auditors should review the contractor’s R&R policy and practices,
the basis to qualify for this allowance (e.g., nationality or job), the deployed employees’
compensation agreements, and consider factors determined to be relevant by the contracting
officer. Verify that reasons for rest and relaxation are justified to maintain employee
performance or morale and are based on common industry and/or Government practices.
Challenges should be made to a contractor’s rest and relaxation allowance if support for trips in
excess of one per year is deemed inadequate when compared to known overseas contractor
practices for work performed in Iraq, as indicated by the regional data. In accordance with
FAR 31.201-3(a), the burden of proof shall then be upon the contractor to establish that the R&R
cost is reasonable.PPD 730.5.45.1 April 12, 2004
SUBJECT: Audit Guidance on Compensation Costs for Contractor Employees Located in
Foreign Countries and Performing Work under Iraq Reconstruction Contracts
6
5. Assignment Completion Bonus. Contractors justified providing deployed employees an
assignment completion bonus as a common industry practice and necessary for retention of U.S.
and non-U.S. citizen employees for essential positions in Iraq. Below is a summary of the
responses received on the 37 contractors’ assignment completion bonuses being offered. The
FAOs surveyed indicated that, at the time of their reviews, generally the contractors that
provided this additional compensation had no written policy governing its implementation. Also,
the responses indicate that the contractor’s basis used to calculate the completion bonus may
include costs unrelated to the nature of the completion bonus (e.g., basis included travel costs).
The following is a summarization of the responses.
# of Contractor(s) Calculation of Assignment Completion Bonus
17 Do not offer an assignment completion bonus
8 8%-35% times base pay (based on between 40 – 60 hours per
week)
5 $10,000 bonus (4); $3,250 to $5,000 bonus (1)
2 10% times base pay plus overtime and travel costs
1 60% times total pay
1 10% times total Pay
3 Use varying combinations of the above, depending on the contract
As shown above, 17 of the contractors do not offer an assignment completion bonus. For
contractors that offered assignment completion bonuses, auditors should review the contractor’s
assignment completion bonus policy and practices, the basis to qualify for this bonus (e.g.,
completion of employment agreement term or completion of certain defined and verifiable
tasks), the basis to calculate the bonus, the deployed employees’ compensation agreements, and
consider factors determined to be relevant by the contracting officer. Verify that reasons for
using an assignment completion bonus are justified (e.g., to maintain employee retention, to
complete critical work, or due to common industry practices). In addition, completion bonuses
are not allowable if they are not in compliance with FAR 31.205-6(f)(1) wherein they should be
paid or accrued under an agreement entered into in good faith between the contractor and the
employees before the services are rendered or pursuant to an established plan or policy followed
by the contractor so consistently as to imply, in effect, an agreement to make such payment.
Auditors should also challenge the contractor's bases for calculating and paying the bonus if they
seem incongruent with the nature of the bonus. In accordance with FAR 31.201-3(a), the burden
of proof is then upon the contractor to establish that such a cost is reasonable and necessary for
the performance of the contract.
6. Foreign Service Premium or Allowance. Contractors justified providing deployed employees
a foreign service premium or allowance based on the additional expenses the employees incur as
a result of performing work in a foreign country. Shown below is a summary of the responses
for the 37 contractors and the basis used to calculate the foreign service premium or allowance.PPD 730.5.45.1 April 12, 2004
SUBJECT: Audit Guidance on Compensation Costs for Contractor Employees Located in
Foreign Countries and Performing Work under Iraq Reconstruction Contracts
7
# of Contractor(s) Basis to Calculate a Foreign Service Premium or Allowance
25 Do not offer a foreign service premium or allowance
8 15% times base pay (where the base is between 40-60 hours week)
2 25% times base pay (where the base is between 40-48 hours week)
1 5% times base pay (where the base is a 40 hour week)
1 15% times total pay
As shown above, 25 of the 37 contractors did not offer a foreign service premium or
allowance. Auditors should review the contractor’s foreign service premium or allowance policy
and practices, the basis to qualify for this premium or allowance (e.g., nationality or job), the
basis to calculate the premium or allowance, the deployed employees’ compensation agreements,
and consider factors determined to be relevant by the contracting officer. Verify that reasons for
providing the service premium or allowance are justified as a result of documented additional
expenses for the employee’s duty in a foreign country. Ensure that the expense properly reflects
the period of time of the deployment and the nature of the anticipated employee expenses (i.e.,
whether they are of a continuing nature or a one-time reimbursement). Additionally, determine
that the allowance does not duplicate any other contractor provided differential or allowance
under another name or intent. Auditors should challenge any foreign service premium that is not
adequately supported by the contractor. In accordance with FAR 31.201-3(a), the burden of
proof then falls upon the contractor to establish that this cost is reasonable.
7. Miscellaneous Bonuses, Benefits, and Allowances. The survey responses also highlighted
other miscellaneous bonuses, benefits, and allowances that are similar in nature to those
previously explained above. In some cases, the responses did not include the contractor’s bases
for calculating the item. These miscellaneous items are:
Management Performance Bonus (2 contractors) - 30% times base pay where the base
is a 40 hour week
Key Management Performance Bonus (1 contractor) - 10% to 20% times base pay
where the base is a 40 hour week
Performance Bonus (3 contractors) – one contractor offered a maximum of $2,000;
another offered 10% times total pay; a third offered 3% to 5% times base pay where
the base is a 40 hour week
Program Completion Bonus (1 contractor) – 5% times base pay where the base pay is
a 40 hour week
Holiday Pay (1 contractor)
Clothing Allowance (2 contractors)
Separate Maintenance Allowance (2 contractors)
Cost of Living Allowance (1 contractor) – 20% times base pay where the base pay is
a 40 hour week
Per Diem (2 contractors) – approximately $40 per day at one; the other offered
$50 per day
Special Pay (2 contractors) – 20% times base pay (40 hour week) to handle
munitions; 25% times base pay (40 hour week) for mission essential personnel
Post Allowance (1 contractor) – 60% times spendable incomePPD 730.5.45.1 April 12, 2004
SUBJECT: Audit Guidance on Compensation Costs for Contractor Employees Located in
Foreign Countries and Performing Work under Iraq Reconstruction Contracts
8
As shown above, no more than 3 of the 37 contractors offer any given miscellaneous
bonus, benefit, or allowance. When these items are offered, auditors should review the
contractor’s bonuses, benefits, and allowances policy and practices; the basis to qualify (e.g.,
nationality or job, special circumstances); the basis to calculate the bonus, benefit, or allowance;
the deployed employees’ compensation agreements, and consider factors determined to be
relevant by the contracting officer. Verify that the reasons identified for making the payments
are justified and that they do not duplicate any other contractor provided differential or
allowance. Challenge a contractor provided bonus, benefit, or allowance based on factors not
determined to be relevant by the contracting officer, or if support is deemed inadequate when
compared to other known overseas contractor practices as indicated above. In accordance with
FAR 31.201-3(a), the burden of proof shall then be upon the contractor to establish that such a
cost is reasonable.
Guidance to Evaluate the Aggregate of the Elements of Employee Compensation
While the guidance provided above addresses the individual elements of compensation
that are being offered and paid to contractor employees performing work in Iraq, FAR 31.205-
6(b)(2) provides that employee compensation must be reasonable for the work performed, and is
reasonable if the aggregate of each measurable and allowable element sums to a reasonable total.
Implied in total compensation reasonableness is the concept of offsets between otherwise
allowable employee compensation elements, such as base pay, bonuses, differentials, and
allowances. CAM 6-413.7 provides guidance related to compensation offsets. By using offsets,
a contractor can demonstrate that, in total, the cost of the compensation package is reasonable
despite the fact that one element of compensation may be outside the general norm or higher than
compensation practices of other firms (i) of the same size; (ii) in the same industry; (iii) in the
same geographic area; and (iv) engaged in similar non-government work under comparable
circumstances.
When offsets are claimed in response to auditor challenges of reasonableness of a
compensation element, a determination has to be made on the acceptability of the contractor’s
demonstration of its policy, practice, and/or rationale for their use for offset purposes. For
example, when a contractor is challenged as to the reasonableness of their foreign service
allowance, and the contractor proposes in response to this challenge an offset using a completion
bonus which they do not offer but 50 percent of the contractors in Iraq do, then the contractor
must demonstrate an acceptable rationale for it to be considered. In this instance, for example,
the contractor may be able to reasonably justify the higher level of foreign service allowance by
demonstrating that their total compensation package achieves the same objective as if they
offered a completion bonus (e.g., successful retention of employees). Thus, due to the unique
circumstances, mission requirements, and working conditions throughout Iraq and neighboring
countries for the reconstruction contracts, auditors need to consider the reasonableness of
contractor-provided rationale and documented support for offsets on a case by case basis. As a
result, auditors should coordinate with the contracting officer and their regional special programs
office to ensure all matters are considered prior to questioning deployed employee compensation
costs.PPD 730.5.45.1 April 12, 2004
SUBJECT: Audit Guidance on Compensation Costs for Contractor Employees Located in
Foreign Countries and Performing Work under Iraq Reconstruction Contracts
Other References:
https://www.evernote.com/shard/s36/sh/900a25e3-b8e7-452d-a03c-2f3e6eb4594f/b89b7b75937609cf9aed5559b79b64f2
