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I apologize if this has already been asked.  I tried searching the forum but could not locate this topic.  I would like to solicit opinions on the allowability, allocability, and reasonableness of costs (either as direct or indirect) associated with a Federal contractor paying its employees' incentives (i.e., $100-$500) to receive the COVID-19 vaccine or secure an approved medical or religious exemption from receiving the vaccine.  Federal contractor asserts the incentive costs are necessary/allowable to comply with the recent Executive Order mandating compliance for all Federal Contractors to be 100% vaccinated.  Thanks in advance.

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May I recommend that you make an argument, one way or the other, and then ask others to share insights on your arguments?

I think you need to separately address the incentive for an employee obtaining a vaccine and the incentive for an employee seeking an exemption from the contractor. 

And consider whether you are talking about an already-awarded contract versus negotiating a new contract.

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In principle, I think the costs of a company-initiated vaccine incentive payment would be allowable pursuant to FAR 31.205-13, Employee morale, health, welfare, food service and dormitory costs and credits, paragraph (a)(2) or (3).

In my opinion, $100 or $200 would be reasonable, $1,000 would not. But that's subjective, debatable, and negotiable.

I would expect it to be allocated as an indirect cost.

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On 1/21/2022 at 1:44 PM, HitTheNutz said:

I would like to solicit opinions on the allowability, allocability, and reasonableness of costs (either as direct or indirect) associated with a Federal contractor paying its employees' incentives (i.e., $100-$500) to receive the COVID-19 vaccine

Allowability: Definitely FAR 31.205-13(a)(2) or (3) as a health clinic or wellness center cost.

Allocability: Indirect if this is a contractor-initiated program.  Can be direct, e.g, if this is the contract requirement of an award-fee type contract, but only if the injunction on these types of requirements is lifted.  In the case of the award fee, some data collection is needed, to measure performance.  I don't like the idea of direct at all.  In fact, I don't like the idea of procurement being the chosen instrument for any of this.  Financial assistance grants are more apt, because increased vaccinations meet a public purpose, not a direct benefit of the Federal Government.

Reasonable: Should be based on market research of other businesses that are already doing this, e.g. grocery stores, airlines, etc.  If direct, the PCO can require it as cost or pricing data.  If indirect, the ACO with cognizance over the home office or business unit responsible for the contractor-initiated program can request it as support to the Forward Pricing Rate Proposal.

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On 1/21/2022 at 9:08 PM, ji20874 said:

May I recommend that you make an argument, one way or the other, and then ask others to share insights on your arguments?

I think you need to separately address the incentive for an employee obtaining a vaccine and the incentive for an employee seeking an exemption from the contractor. 

And consider whether you are talking about an already-awarded contract versus negotiating a new contract.

Thank you for your recommendation ji20874 and thank you to the other members for providing their opinions.  This topic is related to an already awarded cost-type prime contract and the contractor is currently billing these incentive payments as a direct contract cost to the Government.  The contractor is not distinguishing the incentives between those employees obtaining a vaccine and those receiving an approved exception (i.e., the incentive is paid equally for either achievement).  

 

My argument would be that the costs of incentive payments provided to contractor employees to receive the COVID-19 vaccine or to secure an approved exemption would be allowable per FAR 31.205-13(a), Employee Health/Welfare/Wellness Costs - as previously expressed by other members.  The reason I posted this here is that others do not share that same opinion on allowability.  However, my opinion is that these incentive costs can only be billed as indirect costs through an indirect pool such as Fringe or G&A.  I do not agree with these incentive costs being billed as direct because there is no explicit contract requirement for the contractor to provide the incentive payments related to vaccines and the incentive payments do not benefit a single final cost objective.  In addition, the contractor is offering this incentive to all employees (direct AND indirect); so in my opinion, it would violate FAR 31.203(b) and CAS 402 if they billed the incentives paid to direct employees as direct costs of contracts and included the incentives paid to indirect employees in an indirect cost pool.  Thanks again everyone.

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Your thought process seems sound to me.  

The contract clause at 52.242-1, Notice of Intent to Disallow Costs, gives guidance to the contracting officer on how to proceed.  If you are the contracting officer, write your notice and send it to the contractor.  

If it were me, I would point to the contractor's plan on offering the incentive to all of its employees, not just employees dedicated to the contract, as the driving reason for rejecting the costs as direct costs and but being open to allowing them as indirect costs.

UPDATE:  I second the question -- why give the incentive to someone who did not get a vaccination?  Maybe the incentive makes no sense for people who seek waivers or exemptions instead of vaccinations.  As I wrote in an earlier comment, "I think you need to separately address the incentive for an employee obtaining a vaccine and the incentive for an employee seeking an exemption from the contractor." 

 

Edited by ji20874
to add update...
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28 minutes ago, HitTheNutz said:

The contractor is not distinguishing the incentives between those employees obtaining a vaccine and those receiving an approved exception (i.e., the incentive is paid equally for either achievement).  

Why is the contractor doing that? What are you encouraging the exempt to do? What is the benefit of an exemption to your company or to the government?

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3 minutes ago, Vern Edwards said:

Why is the contractor doing that? What are you encouraging the exempt to do? What is the benefit of an exemption to your company or to the government?

Mr. Edwards - I do not know why the contractor is doing that.  All I have is that the contractor is "...offering an incentive of $500 to employees who receive the COVID-19 vaccine or have secured an approved medial or religious exemption from receiving the immunization."  You have raised a great point though.  I suppose incentivizing employees to secure an exemption from the mandate is counterproductive to the end goal and purpose of the mandate itself - i.e., for federal contractors to get their employees vaccinated.  Now that I think about it, paying employees to obtain an exemption from receiving the vaccine likely wouldn't be covered under FAR 31.205-13(a) as the exemption wouldn't promote the employees' health, wellness, or fitness.  

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I'd like to add that the cost does NOT need to be an indirect cost. The notion that there must be a specific contract requirement to create a direct nexus is misinformed. Such a position confuses the concept of a "beneficial or causal relationship." (Emphasis added.) See FAR 31.201-4.

CAS 402 (48 CFR 9904.402-30) defines a direct cost as follows--

Quote

(3) Direct cost means any cost which is identified specifically with a particular final cost objective. Direct costs are not limited to items which are incorporated in the end product as material or labor. Costs identified specifically with a contract are direct costs of that contract. All costs identified specifically with other final cost objectives of the contractor are direct costs of those cost objectives.

For example, a vaccination incentive associated with an employee who is assigned on a full-time basis to one and only one contract could conceivably be a direct cost of that contract. It is the contractor's choice. The government contracting officer can decide whether they believe the cost to be allowable; but if they believe it is not allowable, they have the burden of proof to point to the regulation making it unallowable.

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17 minutes ago, here_2_help said:

For example, a vaccination incentive associated with an employee who is assigned on a full-time basis to one and only one contract could conceivably be a direct cost of that contract. It is the contractor's choice. 

Hi H2H - I appreciate your input.  If the contractor chose to employ the scenario you described above (i.e., billing the vaccination incentive direct to a contract for employees working solely on that contract), wouldn't that automatically preclude them from including the vaccination incentives paid to indirect employees in an indirect cost pool?  Because doing so would cause them to violate FAR 31.203(b) and CAS 402 which requires that all costs incurred for the same purpose, in like circumstances, are either direct costs only or indirect costs only with respect to final cost objectives?  I would think the costs associated with vaccine incentives paid to direct employees vs. those paid to indirect employees are incurred for the same purpose and in like circumstances (to keep employees safe and working/on-the-job) - so couldn't it only be one or the other (direct or indirect, not both)?  Thanks,

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4 hours ago, HitTheNutz said:

If the contractor chose to employ the scenario you described above (i.e., billing the vaccination incentive direct to a contract for employees working solely on that contract), wouldn't that automatically preclude them from including the vaccination incentives paid to indirect employees in an indirect cost pool?  Because doing so would cause them to violate FAR 31.203(b) and CAS 402 which requires that all costs incurred for the same purpose, in like circumstances, are either direct costs only or indirect costs only with respect to final cost objectives?  I would think the costs associated with vaccine incentives paid to direct employees vs. those paid to indirect employees are incurred for the same purpose and in like circumstances (to keep employees safe and working/on-the-job) - so couldn't it only be one or the other (direct or indirect, not both)?  Thanks,

No. Different circumstances. For example, some costs of travel may be direct contract costs while other costs of travel may be charged indirect. The circumstances drive the accounting treatment.

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3 hours ago, Vern Edwards said:

If I were an ACO I would argue that a companywide vaccination incentive program benefits the company as a whole and all of its customers. I would not agree to allocation of the costs of such a vaccination incentive program as a direct cost.

Sure. As I acknowledged could be done. You'd have to point to a specific contract clause to overcome your burden of proof, though. Hopefully it wouldn't go to court.

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55 minutes ago, here_2_help said:

You'd have to point to a specific contract clause to overcome your burden of proof, though.

Well, if the contract were FFP, I would address the matter during price negotiations. No contract clause would be involved.

If the contract were cost-reimbursement, I would rely on the Allowable Cost and Payment clause, the cost principle at FAR 31.201-4, and any applicable CAS, probably CAS 418.

If the contract were fixed-price incentive—FPI(F) or FPI(S)—I would rely on the appropriate incentive price revision clause.

If the contract were T&M or L-H, I would address the matter during negotiation of labor rates.

I don't know what you mean by "overcome your burden of proof." It would be an issue of interpreting and applying FAR 31.201-4 and maybe CAS 418. The facts would be the facts.

If we couldn't agree on allocability and the ultimate allowability of some part of the cost, I would encourage the contractor to submit a claim. I would invite the contractor to meet with me and bring its attorney and cost consultant (maybe you) to present its case. I would then make a final decision. If I wrote a final decision denying the claim, and if the contractor appealed, well, I'd consider the amount of money involved and seek advice of counsel.

In short—yawn—no big deal for a cool-headed old salt professional.

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1 hour ago, Vern Edwards said:

Well, if the contract were FFP, I would address the matter during price negotiations. No contract clause would be involved.

If the contract were cost-reimbursement, I would rely on the Allowable Cost and Payment clause, the cost principle at FAR 31.201-4, and any applicable CAS, probably CAS 418.

If the contract were fixed-price incentive—FPI(F) or FPI(S)—I would rely on the appropriate incentive price revision clause.

If the contract were T&M or L-H, I would address the matter during negotiation of labor rates.

I don't know what you mean by "overcome your burden of proof." It would be an issue of interpreting and applying FAR 31.201-4 and maybe CAS 418. The facts would be the facts.

If we couldn't agree on allocability and the ultimate allowability of some part of the cost, I would encourage the contractor to submit a claim. I would invite the contractor to meet with me and bring its attorney and cost consultant (maybe you) to present its case. I would then make a final decision. If I wrote a final decision denying the claim, and if the contractor appealed, well, I'd consider the amount of money involved and seek advice of counsel.

In short—yawn—no big deal for a cool-headed old salt professional.

Interesting position. I would suspect that the writing of the COFD would be easier than surviving an appeal of it, but litigation is always a dicey proposition.

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19 hours ago, Vern Edwards said:

Why is the contractor doing that? What are you encouraging the exempt to do? What is the benefit of an exemption to your company or to the government?

I wonder?   As the definition of an "Employee Vaccination Program" is not define, therefore left to the contractor to so define, couldn't it be incentive program?  I as a contractor want my employees to carry a card that shows vaccination status.   I as an employee have a card that might say vaccination status "exempt" which is a status I was incentivized to attain and state.    If I have no status (refuse to say whether I am vaccinated or exempt) then there is the distinct possibility that I would not have a job with the company.  You are encouraging the employee to state their status.

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20 hours ago, HitTheNutz said:

"...offering an incentive of $500 to employees who receive the COVID-19 vaccine or have secured an approved medial or religious exemption from receiving the immunization."

The basis for this policy is probably that a vaccination or an exemption both meet the mandate in equal measure, therefore treating them differently for compensation purposes would run afoul of EEO laws* (particularly religious exemptions).  Both sound allowable to me.

(*or, at least give be close enough to an EEO violation to compel a firm to just pay the $500)

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53 minutes ago, Vern Edwards said:

Can you cite the applicable EEO law?

The religious accommodation provisions of Title VII might be an opening because the 'award' would also be in an HR file thereby possibly influencing future job responsibilities and promotions.  Admittedly compensation doesn't fall under this part of Title VII, but paying the $500 to everyone who meets the terms of the mandate seems like a wise business decision.

The EEO case related to a medical exemption seems a bit more straightforward under the ADA, which does specifically apply to compensation.

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56 minutes ago, Vern Edwards said:

Maybe, but I don't buy it.  If you are providing an incentive to get vaccinated...

Not sure I do either.  But it's a conceivable argument.

Edit:  My argument was based on the premise that the incentive is to comply with the mandate which values vaccinations and exemptions equally.  

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1 hour ago, Vern Edwards said:

Well, then, everybody can state their status, refuse vaccination, and get $500, for which the government will compensate the contractor.

Is this a great country, or what?

Refuse vaccination is not the issue, stating status of vaccination is.  I will leave it to the contractor and their employees as to how truthful the statement of exempt (again not refusal) is. 

type of contract seems to matter as already stated - 31.205-6 Compensation for personal services might cover it already.

But not to detract it seems the discussion is about existing contracts where all of a sudden a surprise requirement is placed on a contractor who hopes to have their costs of compliance to continue to do business under the existing contract with the government are covered.     My view is a new solicitation that results in a new contract that carries the same requirement gets a different view on the incentive plan cost to the contractor and how that contractor could or could not pass it on to the government when the government reviews a proposal that discusses cost for an employee incentive plan that is inclusive of a vaccination program incentive.  

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