Federal Budget Caps Reimbursement for Contractor Compensation

By Kelline R. Linton,
Junior Associate.


The new federal budget, which became law on December 26, 2013, includes a provision that caps federal reimbursement for contractor compensation at $487,000 annually.  This cap applies to both military and civilian contractors, and significantly reduces the highest level of contractor compensation from its previous annual limit of $952,000 per individual.


While the National Defense Authorization Act (“NDAA”) for Fiscal Year 2014 featured a similar provision that placed a cap of $625,000 for private sector executive compensation on DOD contracts, the federal budget was signed into law after the NDAA, so its lower cap takes precedence.


The $487,000 annual cap does not limit the salaries and compensation paid by contractors to their employees, but it does limit how much the contractors can bill the government for the salaries paid to their employees working on federal contracts.  The Federal Acquisition Regulatory Council is drafting new rules for public comment that will explain how the cap will be administered, but the government will begin to apply the new cap to federal contracts that are awarded 180 days after the law went into effect on December 26.


As always, we are here to assist if you have any questions about the latest change to federal contract reimbursement.