![handle is hein.journals/procurlw45 and id is 1 raw text is: Compensation Is Not a Four-Letter Word: Coping
With a DCAA Executive Compensation Review
By RiCHARD B. O'KEEFFE, JR.
[President Obama has) been
very clear that he shares the
outrage that most Americans
feel about the spectacle of gaudy
bonuses ... for executives at
firms that are getting extraordi-
nary assistance from American
taxpayers. I' not right.1
Some might say that 2009 is
precisely the wrong time to
write an article that is even
remotely critical of any government efforts to prevent the
reimbursement of unreasonable compensation of con-
tractors' executives. Some might think that the spirit of the
times would autumatically applaud the manner by which
the Defense Contract Audit Agency (DCAA) conducts
contractor executive compensation reviews (ECRs) the
primary tool by which contracting officers make judgments
regarding the allowability of the quantum paid by contrac-
tors to their top executives. But this article has nothing
whatever to do with corporate jets, over-the-top corner
office makeovers, or gaudy bonuses of any kind. It has
everything to do with small- and medium-size businesses,
struggling to turn a profit in a hyper-regulated marketplace,
dealing with the vagaries of federal cost allowability rules,
and the DCAA ECR methodology. As a practical matter,
in our experience,2 the amount typically recommended for
disallowance pursuant to an ECR ($100,000 to $300,000
in a given fiscal year) is large enough to be a significant
hit' to the contractor's balance sheet, but also too smal to
make pursuing the matter through the Disputes clause3
under the Contract Disputes Act (CDA)4 a good business
decision. This is the DCAA's sweet spot, which perhaps
Richard B3. O'Keeffe, ]r. is of counsel in the WaZshington, D.C., office
of Wiley Rein LLP.
explains why there have been so few fully litigated ECR
disputes and reported decisions in recent decades.
Yet the DCAA ECR method is fundamentally flawed
from an objective or scientific standpoint, and too narrow
in its consideration of subjective or judgmental consider-
ations properly affecting the reasonableness of executive
compensation. This commonly leads to situations in which
contractors sense that they are being ill-used, but believe
there is not much they can do about it except to push back
with their own unassisted and unlearned efforts. In that
posture, little headway can be gained in the face of the gov-
ernment's relatively unfettered ability to enforce collection
of amounts determined to be unallowable, and seemingly
inexhaustible capacity to resist contractor claims in the
costly and time-consuming contract disputes process. Be-
cause the remedies available to many contractors facing an
adverse ECR recommendation are so inadequate, it is critical
that they understand the rules of the game as played by
the DCAA and the contracting officer, and what they can
do to put themselves in the best position to obtain a good
result from the ECR process, and, where necessary, to be in a
(continued on page 18)
News from the Chair 2
Is the Game Worth the Candle? The Fate
of CIGA Override 3
Tecom It What the Decision Means for Contractor
Litigation Strategy and Recovery of Legal Costs 10
News from the Committees 17](ViewImageLocal?handle=hein.journals/procurlw45&div=1&collection=&method=preview&ext=.png&size=3)
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