Contractors complain about Pentagon limits on labor rates

A key contractors trade group has accused the Pentagon of misinterpreting a 2011 law designed to limit the labor and overhead rates that companies charge for defense weapons and services.

The Professional Services Council in a Sept. 18 letter to Undersecretary of Defense Frank Kendall charged that departmental guidance issued July 31 is misapplying the 2011 National Defense Authorization Act.

The law directed the Defense Department to establish a negotiation objective on contracts for new services or task and delivery orders of $10 million or more, with the aim of capping contractor labor and overhead rates at fiscal 2010 levels.

The council worries that the July guidance fails to provide allowable exemptions. “The goal of holding contractors’ labor and overhead rates at 2010 levels is being received by some not as a negotiation objective, but as a mandate that forbids paying higher rates, regardless of whether the increased rates are justified,” said PSC President and CEO Stan Soloway in a Wednesday news release. His group is seeking new guidance.

A spokeswoman for the Defense secretary’s Office of Acquisition,Technology and Logistics told Government Executive that the letter was received only on Tuesday and “given that short time frame, we will want to take the time to fully examine the PSC's letter in order to make an informed and measured response back to them.”

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