DCAA targets Bonus and Incentive Compensation

Bonuses and Incentive compensation is an allowable cost (See FAR 31.205-6). However there are conditions that must be met for the costs to be allowable. These include:

There must be a written policy, plan or agreement at least implying an agreement with the employee.

The costs must be supported.
Costs preceived by the DCAA or the contracting officer to be a distribution of profits will be flagged as unallowable.

The above plans should not be perceived as subjective. The more objective and performance based the better.

This is a hunting ground for DCAA.They have targeted this cost type aggressively questioning costs at every opportunity. Suggest you support your bonus and incentive compensation programs with written, policies, plans or agreements. It is always a prudent idea to bounce your plans off of compensation surveys for reasonableness. Burden of proof for reasonableness is the responsibility of the contractor.

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