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DOE Issues “Absolute Ban” on Overtime for Training and Education

On May 3, the Department of Energy (“DOE”) issued Acquisition Letter 2016-5 (“AL 2016-5”), which provides guidance for managing overtime costs for training, and explicitly addresses overtime costs for training and education. The AL applies to all contracts and is effective immediately until cancelled.

Federal Acquisition Regulation (“FAR”) Subpart 31.2 covers cost principles in contracts with commercial organizations. It stipulates a cost is only allowable only when it complies with all five requirements listed in FAR 31.201-2:

  1. Reasonableness
  2. Allocability
  3. Cost Accounting Standards/Generally accepted accounting principles
  4. Contract terms
  5. All of the other limitations in FAR Subpart 31.2

The limitations include the restrictions in the “Selected costs” discussed in FAR 31.205. If FAR 31.205 states that the cost is unallowable, it means the cost is always unallowable.

One of these “selected costs” is FAR 31.205-44(a) stating that an overtime cost incurred during training or education related to the field in which the employee is working or may reasonably be expected to work is specifically unallowable. However, when overtime work is performed for purposes other than training or education, any training or education that occurs as a side effect is not specifically unallowable (only slightly contradicting the “absolute ban”). But, if a portion of overtime is incurred solely for training and education, this is of course specifically unallowable. If a contractor believes that incurring overtime costs for training and education would lower the overall costs to the government or that the costs are necessary to meet urgent needs, the contractor must submit a detailed costs benefit analysis and appropriate rationale to the contracting officer for approval (again, contradicting the “absolute ban”).

It is important to note that a broad range of training and education costs are recognized as allowable under FAR 31.205.44, as long as those costs are not associated with overtime costs.

To put this in perspective, some of the other expressly unallowable costs are the costs of alcoholic beverages, bad debts, lobbying, contributions, fines, goodwill, and entertainment.

For any questions regarding compliance with AL 2016-5, please contact Cherry Bekaert’s Government Contractor Services Group.

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