A prime contractor hires a new employee from a distance greater than 50 miles away and pays relocation costs as part of the recruitment. As part of the process the employee is required to sign a form including the following statement: "I acknowledge that all monies advanced to me or paid on my behalf by the ?Company? in connection with the relocation of my household, including moving, transportation, and other personal expenses, constitute a loan. Further, I understand that repayment of any such advances so made is required only if I voluntarily terminate my employment with the Company including termination for ?cause? within twelve months from the reporting date of an assignment. If my employment on an assignment is terminated within twelve months of my reporting date because of illness, long-term disability, or death, no repayment of such relocation advances will be required. "After 6 months the employee does not work out and is terminated.

The prime contractor asks the former employee for repayment; however, the former employee is not able to repay the costs. Are these costs now considered to be "Bad Debt" under FAR 31.205?

No. Not at all.

FYI, any expense the contractor records (or has recorded) is unallowable because the employee "voluntarily" terminated within 12 months. See the cost principle on relocation.

On a somewhat related note, this contractor sounds like a "sharp operator" to me, and I mean that in a pejorative sense. I have never in my career seen a voluntary termination conflated with a termination for cause. And I have never seen a relocation agreement packaged as a loan. It seems to me that the main reason for doing so would be to avoid recording an expense (which would be a charge against income) and instead record an asset on the balance sheet (employee receivable). Somebody ought to get DCAA to perform a financial capability audit on this company, stat.

Hope this helps.

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I understood the original post to say that the employee was involuntarily terminated.

Why, Hamburger Helper, do you say it was voluntary ?

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I understood the original post to say that the employee was involuntarily terminated.

Why, Hamburger Helper, do you say it was voluntary ?

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The original post had this language quoted from the agreement:

Further, I understand that repayment of any such advances so made is required only if I voluntarily terminate my employment with the Company including termination for ?cause? within twelve months from the reporting date of an assignment

Here to Help made this statement acknowledging the "voluntary" and "termination for cause" wording

I have never in my career seen a voluntary termination conflated with a termination for cause

I don't get it.

Relocation Costs for an employee voluntaryily resigning within 12 months are unallowable.

Bad debts are unallowable.

Relocation Costs for an employee terminated for cause within 12 months are allowable.

Isn't the question at hand - whether the packaging of relocation as a loan now make the cost a bad debt (not allowable) versus a relocation cost (allowable)?

I don't get it.

Isn't the question at hand - whether the packaging of relocation as a loan now make the cost a bad debt (not allowable) versus a relocation cost (allowable)?

Yes, that was the original question. To which I replied "No. No it is not." Because it isn't a bad debt.

Hope this helps.

Ok - one more time

1) Bad debt - not allowable

2) Relocation Costs Voluntary Termination within 12 months - not allowable

3) Relocation Costs Termination for cause within 12 months - allowable

The situation is number 3 - allowable