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    1. The FAR references quoted below in pertinent part are applicable to this response.
     
    FAR 31.201-2 -- Determining Allowability
    (a) A cost is allowable only when the cost complies with all of the following requirements:
      (1) Reasonableness
      (2) Allocability
      (3) Standards promulgated by the CAS Board, if applicable; otherwise, generally accepted accounting principles and practices appropriate to the circumstances
      (4) Terms of the contract
      (5) Any limitations set forth in this subpart
     
    FAR 31.205-6 -- Compensation for Personal Services
    (e) Income tax differential pay.
      (1) Differential allowances for additional income taxes resulting from foreign assignments are allowable.
     
    FAR 37.104 -- Personal Services Contracts
    (a) A personal services contract is characterized by the employer-employee relationship it creates between the Government and the contractor’s personnel.
     
    2. Pursuant to cost principle FAR 31.205-6(e)(1), "Income Tax Differential Pay"  (i.e., differential allowance for additional income taxes resulting from foreign assignments) is an expressly allowable cost of compensation paid by a contractor to its employee for work being performed in a foreign country under a Government contract. This cost principle applies to a contractor "employer-employee" relationship (i.e., the case in this inquiry) and not to a "personal services" contract as that term is used in FAR 37.104 that deals with establishing an employer-employee relationship directly between the Government and the contractor's personnel.
     
    3. Therefore assuming that this CPFF "Program Management Service Contract" is with a company and not an individual, then there would no problem with paying the company this cost provided that it is otherwise "allowable" pursuant to the criteria set forth in FAR 31.201-2; that is:
      - Reasonable - per FAR 31.201-3 and FAR 31.205-6(b)
      - Allocable - per FAR 31.201-4,
      - Per FAR 31.201-2(a)(3) - complies with Standards promulgated by the CAS Board, if applicable; otherwise, generally accepted accounting principles and practices appropriate to the circumstances, and
      - Per FAR 31.201-2(a)(4) - complies with the terms of the contract (e.g., along with other billable costs, does not exceed the total contract funding limit established in this CPFF contract)


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