How personnel services are priced

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1. One method for every kind of labor

When Defense Department people work on a Foreign Military Sales case, their time is priced by a single method. It is set out in section 20 of Chapter 7 of Volume 15 of the Financial Management Regulation (FMR Vol. 15, Ch. 7, para. 20.0). It applies to personnel costs recovered indirectly through the administrative surcharge and to those charged directly. Direct charges include special management services, Mobile Training Teams, Mobile Education Teams and Technical Assistance Teams.

The regulation prefers real numbers. "When determining the pricing for personnel services, every attempt should be made to use actual costs" (FMR Vol. 15, Ch. 7, para. 20.0). Estimated pricing is acceptable where actual cost data is not available, but the costs must be backed by a reliable audit trail. Who pays for manpower, and when it appears as a line of its own, is covered in who pays for the people on a case.

2. Civilian employees

Civilian services are priced at the rates in effect when the work is performed, using the salary tables of the Office of Personnel Management (FMR Vol. 15, Ch. 7, para. 20.1.1). Base salary is then accelerated by up to three factors.

The fringe benefits rate recovers the government’s contribution to benefits such as retirement, insurance, health plans and cash awards (FMR Vol. 15, Ch. 7, para. 20.1.2.1). It is published every year by the Comptroller’s office. The leave and holiday factor pays for wages during leave and holidays, and is currently set at 18 percent (FMR Vol. 15, Ch. 7, para. 20.1.2.2). It is not applied to civilians assigned full time to a requirement.

The unfunded civilian retirement factor recovers retirement, post-retirement health and post-retirement life insurance costs (FMR Vol. 15, Ch. 7, para. 20.1.2.3). It is also published every year. It does not apply to personnel funded by a Building Partner Capacity case or by the administrative surcharge budget.

3. Full time or by the hour

The build of a civilian price depends on how the person is assigned. For someone full time on a requirement funded by a sales case, the cost is the annual salary for the grade plus the fringe benefits rate and the unfunded retirement factor (FMR Vol. 15, Ch. 7, para. 20.1.3). Otherwise an hourly rate is used: 1/2087 of the annual rate plus the leave and holiday factor, with the other two factors applied on top.

The build is shorter where the funding comes from a capacity building case or wholly from the administrative surcharge budget (FMR Vol. 15, Ch. 7, para. 20.1.4). A full-time person is priced at annual salary plus the fringe benefits rate. Otherwise the same hourly method is used, with the fringe benefits rate applied to the hourly figure. The regulation illustrates the civilian computation in its Exhibit 7-11 (FMR Vol. 15, Ch. 7, para. 20.1.1).

4. Military personnel

Military services are priced using the composite standard pay and reimbursable rates current when the work is performed (FMR Vol. 15, Ch. 7, para. 20.2.1). Military service costs are not included in cases that cite only Military Assistance Program Merger, Foreign Military Financing or capacity building funds. The Comptroller’s office publishes the composite rates, and sales costs are calculated with the rate the tables list as billable to sales entities (FMR Vol. 15, Ch. 7, para. 20.2.1.1). Monthly, daily or hourly rates are worked out from factors in the notes to those tables.

Since fiscal year 1985 the composite rates have included the cost of retirement (FMR Vol. 15, Ch. 7, para. 20.2.2). They must still recover other benefits. Leave and holiday costs are added when reimbursement rests on time actually worked, for example where the buying country does not otherwise pay for those periods. The additions are expressed as percentages of the composite rate.

Moves are priced through the same rates. Permanent change of station costs are built into the composite rates (FMR Vol. 15, Ch. 7, para. 20.2.3). From fiscal year 2005, services must be priced with those composite rates rather than by charging the actual cost of a move to support a case. The older method, which deleted the move element and charged actual costs, applied to cases before fiscal year 2005.

5. Foreign national employees

Foreign national personnel are priced at actual costs or at standard pay rates (FMR Vol. 15, Ch. 7, para. 20.3). Standard rates must not be used when they are known to be lower than actual costs. Either figure must include an estimate for benefits such as sick leave, maternity leave, death, accident, unemployment, and retirement or separation. That applies when those benefits are paid to the employees or required by the host government’s laws.

6. Travel, and working capital fund rates

Personnel costs include travel time for temporary duty and permanent moves where the travel results directly from performing a case (FMR Vol. 15, Ch. 7, para. 20.4.1). Permanent moves do not apply to capacity building cases. Travel, per diem, living allowances and other entitlements must be identical to those paid to Department personnel on ordinary mission work at similar locations (FMR Vol. 15, Ch. 7, para. 20.4.2). Travel waivers are granted on the same basis as for ordinary defense business (FMR Vol. 15, Ch. 7, para. 20.4.3).

Facilities financed by the Defense Working Capital Fund charge the Department’s approved stabilized rates, unless special rates are approved or actual cost reimbursement is appropriate (FMR Vol. 15, Ch. 7, para. 20.5.1). The rate charged is the one in effect when the order is received and accepted, not when the work is done. Their prices to sales purchasers are adjusted to include unfunded retirement and post-retirement health costs, worked out on the civilian salary content (FMR Vol. 15, Ch. 7, para. 20.5.2). Those amounts are not kept by the fund activities. They are deposited into miscellaneous receipts account 3041.

Key terms

Fringe benefits rate	The published rate that recovers the government’s share of civilian benefits.
Leave and holiday factor	An 18 percent addition for wages paid during leave and holidays, not applied to full-time staff.
Unfunded civilian retirement factor	A published factor for retirement and post-retirement benefit costs.
Composite standard pay rate	The published military rate, including retirement since fiscal year 1985, used to price military services.
Stabilized rate	The approved working capital fund rate in effect when an order is accepted.

Every statement above links to the document behind it. The full source list for this piece is on the sources page.

This page describes public United States government programs for general information. It is not legal, regulatory or procurement advice, and it does not address the facts of any particular case.

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