On May 18, 2012, the United States House of Representatives voted 299-120 to approve HR 4310, the National Defense Authorization Act for Fiscal Year 2013 [pdf]. The House vote rejects two amendments that had been the topic of some discussion within the government contracts community. One would have restricted the definition of “commercial item” in order to reduce the DOD’s use of streamlined commercial item procurement. FAR 2.101 currently defines commercial item as an item customarily used by the general public that either has been sold to the general public or “has been offered for sale” to the general public. The amendment would have limited commercial item sales to items actually sold to the public in quantities similar to those purchased by the government. The amendment would have addressed a criticism charging that the government uses streamlined commercial item procedures for items that are either not really used by the public or are used by the public only in token amounts.

The House also rejected a proposal to limit allowable executive compensation to $400,000. Currently, allowable executive pay is capped at $763,029. See 77 Fed. Reg. 24226 (April 23, 2012). The $400,000 limit would have reduced allowable executive compensation to 2004 levels and to the salary of the President of the United States.

Allowable compensation costs for the senior executives of Government contractors is capped by statute. See 10 U.S.C. § 2324(e)(1)(p); 41 U.S.C. § 4304(a)(16). The limitation appears in the FAR Cost Principles at FAR 31.205-6(p). These caps do not actually limit the amount of compensation that an executive may receive from a government contractor. But executive compensation costs in excess of the limit are deemed unallowable costs. They must be paid from the contractor’s profit and not reimbursed by the Government as a direct or indirect cost.

Related articles—

Fatal flaws in DCAA’s challenge to contractor executive compensation (Feb. 1, 2012)

More contractor oversight in the 2012 National Defense Authorization Act (Dec. 23, 2011)

Executive compensation FAQ (June 15, 2011)