Who says you cannot bill the government – and get paid – for all hours actually worked by salaried employees, including hours in excess of forty hours per week? Under certain circumstances and using certain contract clauses, the Armed Services Board of Contract Appeals (“ASBCA”), in GaN Corporation, ASBCA No. 57834 (July 13, 2012), says this is perfectly acceptable.
The U.S. Army Engineering Support Center in Huntsville, AL (“USACEH”) contracted with GaN Corporation to provide interior design support for office and barracks furnishings. USACEH issued several Labor Hour task orders under the contract, which the contractor fully performed according to the pricing that was listed in the contract. After all of the work was done, USACEH claimed that GaN Corporation overcharged the government $72,378.08 for labor. The Government’s overcharge claim was based on GaN Corporation billing for all hours its salaried employees worked on the task orders, even if the salaried employee worked more than forty hours per week and the value of the total hours billed exceeded the amount actually paid to GaN Corporation’s salaried employees.
The ASBCA ruled for the contractor and denied USACEH’s claim. GaN Corporation’s price proposal clearly stated that “because of the contract type, all hours worked, whether compensated or uncompensated, will be charged and billed to the contract.” There was no dispute that (1) GaN Corporation’s employees actually worked the hours claimed; (2) overtime was not applicable because the contract did not provide for overtime premiums; (3) all of the employees at issue were properly classified Fair Labor Standards Act Exempt employees; and (4) all employees were paid their regular salaries. Also, the parties agreed that GaN Corporation had billed the government the agreed hourly rate for all hours actually worked by its salaried employees. Those hourly rates “were based on an employee’s annual salary, not an hourly rate, and that all hours worked will be charged and billed to the contract.” According to the ASBCA, “the government believes that evidence of actual payments under the Payments clause means appellant can only bill the government when it incurs an hourly cost and thus, if salaried employees are not paid for working extra hours, appellant cannot charge the government for those extra hours.” Applying the plain language of the Labor Hours Contracts payment clause (FAR 52.232-7) and the other applicable contract clauses, the ASBCA held that “these sections do not specifically prohibit the contractor from collecting its hourly rates for work performed by salaried employees (subject to the price ceiling.).” The ASBCA then upheld the contractor’s appeal and remanded the case for a determination of quantum.
The lesson learned here is to carefully apply the payments clauses to determine whether a contractor may bill for all hours worked by properly classified Fair Labor Standards Act Exempt salaried employees – even hours worked in excess of forty hours per week and for which the employees will not be paid above their regular salary. In the right circumstances and after careful consideration of the applicable contract clauses, this could be an effective way to increase profit margins on particular government contracts that heavily rely on salaried employees.
Michael Schrier is the attorney responsible for the content of this post.