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Hourly Rates Chargeable for Salaried Employees' Overtime


An appeal of a government claim for alleged overcharges was granted by the Armed Services Board of Contract Appeals because, based on the contract as a whole, the government's interpretation of the payments clause was without merit. The dispute arose from labor-hour task orders issued under a contract to provide interior design support. As indicated in its proposal, the contractor charged for all employee hours worked, including uncompensated overtime. The government contended the contractor charged for employees' "unexpensed and uncompensated" overtime. According to the government, FAR 52.232-7, Payments under Time-and-Materials and Labor-Hour Contracts, "[made] all employees hourly workers for purposes of reimbursing the contractor." Therefore, the contractor could charge only for hourly costs and not for extra hours worked by salaried employees.

Not Legally Defensible

However, the contract provided for firm-fixed-price rates, and for labor-hour task orders to be priced in the pricing schedule. In addition, FAR 52.232-7 (a)(2) and (3) provided for hourly rates prescribed in the pricing schedule to be multiplied by the number of direct labor-hours performed, and for hourly rates to be paid for all labor performed on the contract that met the contract's labor qualifications. It was undisputed the employees worked the hours charged and the contractor paid their salaries, and it was "not legally defensible" for the government to "read out" or ignore portions of FAR 52.232-7 (a)(2) and (3). In addition, the government relied on references to costs and ceiling price in FAR 52.232-7 (d) and (e) that were not germane to the issue and did not specifically prohibit the contractor from collecting hourly rates for work performed by salaried employees. ( GaN Corp., ASBCA, 93,537)





(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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