Recently Effective FAR Modification Creates Confusion Regarding Uncompensated Overtime for Service Contractors

In light of a recent modification to the Federal Acquisition Regulation (“FAR”) regarding the identification of uncompensated overtime in service contracts, now, more than ever, contractors must make sure that:  (1) they have in place clear policies and processes regarding time recording and estimating, and accumulating and reporting labor hours, labor rates, and indirect costs; and (2) they are complying with said policies and processes.

Effective March 2, 2015, the FAR was amended to add the definitions of “adjusted hourly rate” and “uncompensated overtime” to FAR 37.101 and also to clarify that “[w]henever there is uncompensated overtime, the adjusted hourly rate . . . shall be applied to all proposed hours, whether regular or overtime hours.”  FAR 37.115-2(d), FAR 52.237-10.  This means that when a proposal for a service contract is based upon uncompensated overtime hours, the proposal’s proposed hourly rates must be consistent with the total time proposed, including the uncompensated overtime hours.

The comments to the FAR’s Modification state that the amended rule clarifies existing FAR policy which is that there is no requirement to record uncompensated overtime and base labor and indirect costs on both compensated and uncompensated labor hours.  In other words, the Modification does not expressly require that proposals be prepared based upon uncompensated overtime hours or that labor rates be based on uncompensated labor hours in all circumstances.

Despite that the Modification is merely a “clarification,” the amended rule is somewhat unclear and thus creates risks for contractors.

Thomas Lemmer

About Thomas Lemmer

Thomas A. Lemmer routinely counsels and litigates for clients on US federal contract formation, contract administration and dispute resolution. Tom also counsels clients on global procurement issues, with the assistance of Dentons’ offices worldwide, including employment issues, how to do business in a given country, how to do business with the US government and risk assessments.

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