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)
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