Can the Contractor give a BBQ on Government time, pay his employees and charge the Labor Clin for the hours?
I am not aware of any specific prohibition on legal employee activities under a firm fixed price labor CLIN. The Government is primarily concerned with employee labor hour accuracy when it is being billed by the number of hours, e.g., cost reimbursement contract or time and materials contract, as opposed to a one “each” FFP labor CLIN. The Government has no audit rights under commercial contracts, which recognizes the Government's limited ability to govern how a contractor manages it contracts and its employees' time. From a purely business perspective, a FFP contract obviates the need for timekeeping audits, as the Government is not paying for hours spent on the job but rather for a performance outcome. The final price accepted by the parties for a fixed price contract reflects agreement only on the total price, and not on individual cost elements (labor included). Under performance-based acquisitions, the contractor is held accountable for the overall success of the effort. One company that gives its employees a BBQ may actually have a higher performance outcome than another company that has its employees actually work those hours. Of course, if an environmental, safety, or health hazard exists during the time that employees are working on a Government contract, other procedures apply.
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Contractor employees are not permitted to engage in Government sponsored "morale and welfare" activities during duty hours designed for the benefit of Government employees (i.e., health fairs, fitness activities), as doing so would inject the Government in the performance (or lack thereof) of the contract, but this is not your situation. Realize that "normal working hours" as stated in the contract/work statement are just that— normal. Unless the contract calls for "mandatory" (or similar) work hours, then there would be no breach of contract for an occasional or one-time contractor-sponsored event unless it violates some other contract term or condition. All that said, I recommend you consult with your agency's legal counsel for a more definitive opinion.