Overseas Cost of Living Adjustment (COLA)

The only authoritative source that I know of is the contract under which the allowance will be paid. If the contract is silent on that point, the question then becomes whether the allowance is reasonable. Remember, under FAR 31.205-6, compensation must be reasonable for the work actually done. What other contractors in the area pay for similar work is one factor that may be considered in determining reasonable compensation. Although not binding or applicable to contractors in general, many contractors base overseas allowances on the Department of State Standardized Regulation.

The only authoritative source that I know of is the contract under which the allowance will be paid. If the contract is silent on that point, the question then becomes whether the allowance is reasonable. Remember, under FAR 31.205-6, compensation must be reasonable for the work actually done. What other contractors in the area pay for similar work is one factor that may be considered in determining reasonable compensation. Although not binding or applicable to contractors in general, many contractors base overseas allowances on the Department of State Standardized Regulation.

A contract is yet not in place, however the solicitation states, "Personnel stationed overseas in support of this task will be eligible for "as available" services pursuant to their SOFA status and will be eligible for Cost of Living Adjustment (COLA) at the permanent location." I gather it would behoove me to reach out to the Contracting Office and ask the question.

Before you go to the CO, look at FAR 31.205-6 (e) (foreign tax differential), (f) (bonuses) and (m) (fringe benefits). Many contractors pay employees a bonus for certain aspects of overseas assignments such as completion bonuses instead of or in addition to salary. Others provide R&R benefits as a fringe benefit. R&R costs can be problematic sometimes, particularly, the question as to whether the costs are direct costs or indirect costs.

If you're looking for something reasonable to compare to or use to estimate you could use the D.S.S.R Living Quaters Allowance (LQA) and post differential rates. These are the rates used for Gov't civilian compensation while serving in an overseas location. The Joint Travel Regulation (JTR) says to use the DSSR for overseas. Post differential is applied to disposable income.

http://aoprals.state.gov/web920/location.asp?menu_id=95

This is, unfortunately, a topic contractors need to figure out on their own. If they have a contract, they need to read what the contract says. If the contract is silent, they need to establish their own position and (if they are smart) document it in a policy/procedure.

Previous posters have listed the appropriate regulatory citations. I was going to mention the DCAA guidance, but the DCAA guidance on this topic is outdated and was never very good to begin with. That won't keep the auditors from using it to question costs, of course. That will leave the contractor with its documented policy as the primary basis for asserting cost reasonableness.

Hope this helps.

Lots of good advice here. Chris M directly answered the question with the link to the Department of State website. Coming to you from Riyadh after 25+ years of prime and subcontract administration and management overseas...

How do you derive "spending income" or "disposable income" to apply the differential?

How do you derive "spending income" or "disposable income" to apply the differential?

The COLA percentage is based on the Country & Post the individual is being assigned to.

COLA is then derived by taking that percentage and multiplying it by the annual spendable income by salary and family size (http://aoprals.state.gov/Content/Documents/SpendableIncome.pdf).

Example: The COLA percentage for Japan, Okinawa is 35%. For an individual who earns $92,000 and has a family size of 3, you would take $38,700 and multiply this by 35%. So, in a nutshell and in addition to obtaining their salary of $92,000, he/she would also rate $13,545 in COLA.