2018 Maximum Compensation Allowances Have Been Increased

In 2014, the government made a significant decrease in allowable compensation to $487,000. Since then, the threshold has consistently been raised about 2.5 to 3 percent per year. In 2018, the amount has increased from $512,000 to $525,000.

If you typically use the National Compensation Matrix to determine allowable compensation, we expect a 3 percent increase over the 2017 caps. Historically, this has been a good estimate of the increases that have occurred.

Protest Caps Have Increased for Task and Delivery Orders

As many of our clients have experienced a large increase in contract protests, it should be good news that NASA, the Coast Guard, and the DOD have increased the thresholds from $10 million to $25 million (with limited exceptions).

DCAA Is Catching Up on Incurred Cost Audits

We have noticed that our clients have been getting their incurred costs audits by DCAA completed quickly and they are performing multiple year audits simultaneously. This positively affects both clients and accountants since clients have less exposure to open years and accountants have less exposure for unexpected changes to the submitted rates.

Corporate-Owned Vehicles Are Still Being Questioned

Both federal and state auditors are focused on removing any personal use of expenses from the incurred cost rates. If you have corporate-owned vehicles, it is important to log a daily record of miles for business use so the personal usage can be calculated at year-end. Some state auditors also request a description of the business usage if it is unclear from the mileage log.

In addition, we have also seen clients paying 'auto allowance' to some employees and not requiring any sort of reporting of the business miles being used for the vehicle. These allowances should be treated as compensation and should be included as part of the employee's hourly rate. Since these items are base compensation to the employee, we would recommend that the 'auto allowance' not be segregated in the salary records.

Interest Rate Increased for Facilities Cost of Capital Calculations

Consistent with banks' increasing their prime rate, the interest rate for facilities cost of capital was increased from 2.625 percent for the first six months of 2018 to 3.5 percent for the last six months of 2018. This rate is also applicable to the amount the government pays to contractors for late payment and vice-versa.

TINA Increased to $2 Million

For all contracts entered into after July 1, 2018, the Truth in Negotiations Act has been changed from $750,000 to $2 million. The Department of Defense has released a class deviation effective July 1, 2018 so that contractors do not have to wait for the FAR to be changed to implement the change. Contracting officers can still request pricing data on contracts under the threshold, but the data does not need to be certified. This substantially reduces the contractor's risk for claims of defective pricing.

Kreischer Miller's Center for Private Company Excellence

Kreischer Miller makes a significant annual investment in our Center for Private Company Excellence, a forum we created for business owners and executives to obtain information regarding the unique aspects and challenges of building a prosperous private company, as well as to network with peers. Topics include governance, leadership, business structure, strategy, growth and performance, finance and valuation, tax strategy, valuation, and succession planning.

Membership in the Center for Private Company Excellence is complimentary. Learn more and become a member here.


If you have any questions or comments about this topic, please contact David E. Shaffer, Director, Audit & Accounting and Government Contracting Industry Group Leader at Email or 215-441-4600.

Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.