On cost-type work, a benefit is recoverable only if it is reasonable and written down.
The compensation cost principle in FAR 31.205-6 treats fringe benefits, employee insurance included, as allowable to the extent they are reasonable and required by law, an employer-employee agreement or an established policy of the contractor.
What the rule says, and what we do about it.
The test
- Fringe benefits include vacations, sick leave, holidays, military leave, employee insurance and supplemental unemployment benefit plans.
- The cost must be reasonable.
- It must also be required by law, by an employer-employee agreement, or by an established policy of the contractor.
What supports the cost
- A written benefits policy that says who is eligible and what the contractor contributes.
- The same contribution rules on government and commercial work, so the plan’s cost does not change with the contract type.
- A benchmark against comparable employers, the simplest evidence that the cost is reasonable.
What CFH does about it
- Writes the plan terms and contribution rules down in a form that can be handed to an auditor.
- Benchmarks the plan against comparable employers.
- Reviews contribution consistency across government and commercial work.
- Works with your contracts counsel or auditor, who decide how the principle applies to your contract.
General information, not legal advice. Your wage determination and contract clauses govern, and contracts counsel decides how they apply to you. We bring counsel in.
Three things employers ask next.
Who decides whether a cost is allowable?
On your contract, the contracting officer or your auditor applies the cost principle. We prepare the support; the call itself, and the reading of your contract, sit with your contracts counsel.
Where does a benchmark help?
It shows the cost is in line with comparable employers, which is the usual way to evidence reasonableness.
Can one plan serve government and commercial work?
That is the aim. One written policy and the same contribution rules keep the plan’s cost from changing with the contract type.
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents, two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
An independent employee benefits consulting firm. We look at the entire benefits program — cost, plan performance, risk and administration.
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