is this violating any ethics rules or Laws
This should not present an ethical conflict or violation of law. As a general rule, unless the owner is otherwise conflicted due to other matters such as Organizational Conflict of Interest (OCI) or proprietary property issues, etc., this should not present an ethical or legal dilemma simply because the owner’s salary is also directly charged to another government contract.
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The main concern, however, is how the owner’s time is charged and whether it reflects the actual time incurred so that the government is not overcharged. The bottom line is that the owner’s salary which is charged to the contracts whether directly or indirectly, cannot exceed the hours actually worked. Accordingly, the contracts should only be charged for the indirect hours and the direct hours that the owner worked to avoid overcharging the government.