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Compensation Based on Tech Company Survey Was Reasonable

A contractor met its burden of proving disputed executive compensation costs were reasonable, according to the Armed Services Board of Contract Appeals, because the contractor followed a plan that set reasonable compensation levels, and the government's analyses of reasonableness were unpersuasive. The contractor provided software solutions to command and control problems under cost-reimbursement contracts. Based on Defense Contract Audit Agency audits, the administrative contracting officer issued a decision denying and demanding repayment of executive compensation costs for two fiscal years. In determining reasonableness, the DCAA compared several compensation surveys and disagreed with the contractor's classification of senior engineers as executives.

Other Surveys Irrelevant

However, contractors are not required to use more than one compensation survey, and the contractor reasonably determined a single survey of high technology companies provided the best match. In addition, payment of compensation at the survey's 50 th to 75 th percentile of total cash compensation was reasonable based on the contractor's and executives' financial and nonfinancial accomplishments and performance, and the evidence established senior engineers had business development responsibilities and were appropriately matched with comparable survey executive positions. On the other hand, the additional surveys the government relied on "were not sufficiently comprehensive, reliable, relevant to [the contractor's] industry, and/or the job matches were not sufficiently similar and representative to warrant material reduction of the results obtained from use of the [survey relied on by the contractor] ." The government also made flawed adjustments to the survey results and used regression analyses that were not supported by the survey data, performed "peer group" analyses using dissimilar companies, failed to properly consider a voluntary profit sharing contribution in measuring financial performance, and used unsupported assumptions to fragment the contractor's total revenues for assessing reasonableness of the compensation of division executives. ( Merton Inc., ASBCA, 93,500)





(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )


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