For U.S. contractors in Iraq, a legion of issues.

• Author: Prysock, Mark
• Position: WashingtonInsights - Defense Contract Audit Agency

Imagine you are a contractor working on a project for the federal government. More specifically, imagine that the contract requires your company to perform work in Iraq. Maybe your company provides construction services for the many roads and buildings under repair. Maybe your company provides translators to assist military personnel interacting with the Iraqi population. Or maybe your company designed a weapon system currently in use, and your people in Iraq are overseeing and/or maintaining the system. No matter what the job, the work schedule probably looks something like this: your personnel work 10-hour days, seven days a week for eight straight weeks. They then take two weeks off. At night, your personnel are confronted with machine gun and mortar fire into their base camps.

Given these circumstances, you might find it difficult to lure qualified personnel to work in Iraq. One way to address this problem would be to offer your workers higher wages, sign-on bonuses, completion bonuses and other incentives related to the project.

However, if you did this, you could very well run into a buzz saw created by the Defense Contract Audit Agency, the group charged with auditing contracts engaged in by the Department of Defense. Audit guidance issued this spring by the DCAA is putting the squeeze on federal contractors, and greatly reducing their ability to continue placing qualified workers "in country."

Issued on April 12, the DCAA memorandum seems innocuous enough. The guidance informs field auditors that DCAA conducted a survey of government contractors working abroad, and based on the responses, developed guidelines for field auditors to use when determining whether compensation rates are "reasonable." A quick read through the guidance, however, reveals exactly how onerous this may be.

To begin with, the guidance places the burden of proving "reasonableness" squarely on the contractor. The DCAA has set standard compensation rates based on the survey results, and now requires contractors to justify paying their employees anything above these rates. Since the overwhelming majority of contracts were signed prior to issuance of the audit guidance, many government contractors now find themselves contractually bound to their workers on the one hand and in a precarious position vis-a-vis government auditors on the other

Commonsense Approach?

How are auditors to determine whether a particular compensation rate is reasonable? The guidance urges...