Direct Labor: Salary Survey vs. Actual Experience

[SRober]

What are your thoughts about a business using salary surveys to determine direct labor hourly rates as opposed to their experience?

Salary surveys can come from three sources:

1. Published salary surveys of government contractors

2. Published salary surveys of industry (e.g. IT)

3. Department of Labor BLS statistics

As a small business, we do not have fixed salaries for job classes, but rather negotiate salaries individually for each hire.  When we bid on a contract, we don't always know who we'll staff it with, and we may need to make new hires.  There's a lot of volatility in our direct labor rates.  Thus, we'd like to bid using rates from salary surveys.  How do you think COs will react? How should we support this? How would you react as a CO, and what support or justification would you like to see?

[ji20874]

Fixed-price contract?  Cost-reimbursement?  Or T&M or LH?

[here_2_help]

14 hours ago, SRober said:

What are your thoughts about a business using salary surveys to determine direct labor hourly rates as opposed to their experience?

Salary surveys can come from three sources:

1. Published salary surveys of government contractors

2. Published salary surveys of industry (e.g. IT)

3. Department of Labor BLS statistics

As a small business, we do not have fixed salaries for job classes, but rather negotiate salaries individually for each hire.  When we bid on a contract, we don't always know who we'll staff it with, and we may need to make new hires.  There's a lot of volatility in our direct labor rates.  Thus, we'd like to bid using rates from salary surveys.  How do you think COs will react? How should we support this? How would you react as a CO, and what support or justification would you like to see?

I think you have an inadequate compensation system, which may be viewed as a significant deficiency in a DCAA accounting system review.  To remediate, I recommend creating job categories/classes with high/low/mid salary bands. The independent surveys should be applied to validate the reasonableness of your compensation, both by salary band and by individual. While I absolutely do not agree with DCAA's approach to determining compensation reasonableness, I do believe a small business can approach things in an organized way that facilitates both internal and external compensation reasonableness reviews.

To add more more words, most every contractor "negotiate salaries individually for each hire." That's not unique to your company. However, creation of salary bands for labor categories/classes (e.g., Senior Software Engineer, Junior Software Engineer)--with apppropriate criteria for each category/class--creates an upper/lower bound for how much your company should be willing to pay (on an individual basis). For example, if the salary band for Senior Software Engineer goes from $100,000 (low) to $150,000 (high) per year, it would likely not be reasonable to be a new Senior Software Engineer $250,000 in annual salary.

I don't know how the strike thru text got in there, but I can't seem to edit it out. Please ignore the strike thru and read the text.