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Monday, March 25, 2013

Use of AIDAR Personnel Compensation Clause under T&M

As you look through AIDAR and the text of USAID specific clauses in Subchapter H, you will find that all of the clauses have a prescription for use in ALL contracts or ONLY IN Cost Reimbursable contracts, but none of the clauses specifically require use in Time and Materials (T&M) contracts.
The reason, as it was explained to me, is that when AIDAR was being written, USAID did not use T&M contracts to any great extent and therefore had no need for any specific clauses to augment T&M clauses already used from the main FAR.
However, now that T&M IQCs as well as stand-alone contracts have become common place, the COs seems to want to use cost reimbursable AIDAR clauses in all the T&M contracts as if they were meant for that use.  This creates confusion and does not bear fairly on contractors.
This post explores the effects of the AIDAR Personnel Compensation Clause (752.7007) and restrictions associated with USAID Contractor Salary Threshold as applied to T&M contracts.
Personnel Compensation Clause 752.7007 is used in solicitations and contracts for T&M awards even though its prescription clearly states that the use should be restricted to cost-reimbursement contracts only.  The clause was changed in 2007 to allow Contractor Policy prevail in establishing salaries, but most, if not all, COs enhance the clause in the actual contracts to put a 3-year highest salary restriction (removed in 2007) back in.  This is weird and limits the already limited salary ceiling.  It is also almost impossible to apply to “independent consultants”, since they do not have 3- year annual salary histories, only daily rate histories, which means that if they only worked for 3 days in each of the last 3 years, their annual salary ceiling may come out at $1,500 per annum….. or $5.70 per day – i.e. below minimum wage J
The best and correct approach would be to allow contractors use their policies, biodatas and FAR 31.206-6 Compensation for personal services as limitations.  Alas, this topic is for another post… 
The reason why the Personnel Compensation AIDAR clause is included in the solicitations for T&M and Fixed Price Contracts is ADS 302, which implies that this clause should be included in solicitations for T&M and Fixed Price Contracts as a measure of limitation on “reasonable” compensation, which would be allowed by Contracting Officers during cost analysis for build-up of the fixed daily rates (FDR) or a fixed price.
302.3.6.10 USAID Contractor Salary Threshold (USAID CST)  The USAID Contractor Salary Threshold (CST) sets a maximum rate on salaries under contracts where the Agency establishes the price or the fixed labor rate for services after considering what the actual staff salaries would be.
This seems overly restrictive for competitions where two or more offerors are in fact expected to bid and the price is being established by competition on an open market.  However, given that our market is not as large as the DoD market, it would appear USAID does not trust the “open market” competition to establish a fair rate and is therefore limiting the basis of a rate build-up during proposal stage.
Now, once the fixed daily rates (under T&M) or fixed price (under FFP) are established, the contract itself should not contain this clause, since it is up to the contractor what they decide to pay their employees, as long as what they charge the Government is a fixed daily rate or a fixed price already negotiated.
If your Fixed Price Contract contains that clause, ask for it to be removed as inapplicable or ask that USAID confirms in writing that this clause would only be used as a limitation on recovery of actual costs if your Fixed Price Contract “coverts” to cost-reimbursable under a Termination for Convenience scenario.
For T&M contracts, the advice is the same as above, with one caveat – that caveat applies if your T&M contract is for performance overseas and includes Local Hires and Third Country Nationals (TCNs), which are not billed at Fixed Daily Rate, and, are instead billed under “Materials” at cost plus a multiplier .  By the way, the multiplier is the easiest way to negotiate a “load” on direct cost labor billed under T&M, since you will want to recover indirects and a fee and T&M contracts prohibit use of fee as a stand -alone under the Materials portion.
If you do have Locals and TCNs billed under Materials, the Personnel Compensation Clause (normally enhanced to include limitations of USAID LCP on CCN salaries) is appropriate, because it establishes the limitations on non-FDR salaries (for example future subcontractors) as well as Local and TCN salaries – since their salaries are “reimbursed” under the contract. 
However, to avoid confusion, you need to clarify in writing with the CO that this clause in your T&M contract only applies to non-FDR labor, including Local Hires and TCN and does not apply in any way to Fixed Daily Rate labor or associated costs.
The reason is Allowances.  Let’s say your Fixed Daily Rate employee gets paid above USAID CST (still within the Fixed Daily Rate – i.e. you take less “load” on that employee for business reasons).  Would his post differential and danger pay apply to his actual salary or to the salary up to USAID CST?
Since you are not restricted to what you will pay your employees once the FDRs are fixed under a contract, are you restricted to what the basis for allowances is?
If your T&M contract contains Personnel Compensation Clause and you have not clarified in writing that the clause only applies to reimbursable labor like Local Hires and TCNs, the audit and subsequent USAID CO decision may find that you are restricted by the personnel compensation clause for all labor in what you pay them and in what you will charge their allowances on.