Profitability has been strong for Architecture and Engineering firms over the past several years. With increased company success comes individual financial success, usually in the form of bonuses. Because of that, there is now increased scrutiny from State DOTs surrounding bonuses. How can firm owners reward their employees and themselves while adhering to the requirements imposed by government contract regulations? In this episode of “Unique Perspectives – The DGC Podcast,” our guest is Chad DaGraca, a Partner at DGC and the co-leader of our Architecture and Engineering Practice. Chad discusses bonus criteria for A&E firms and how you can ensure you’re adhering to the Federal Acquisition Regulation (FAR).
Here is a partial transcript from Chad’s interview with host Tom Annino.
Tom Annino: This is kind of a unique situation in some ways for the firms because the burden of proof is on them to prove that these bonuses are legitimate and within the boundaries of the rules. How do they prove it?
Chad DaGraca: Documentation is critical. Firms really have to connect the dots for the agencies that are looking at their bonus plans. Here is the plan that we had in place. Here is how we evaluated people. Here is the different criteria that we looked at. It really is important. The good news is if you do all of those good hygiene things, you should be able to get the majority of your bonuses, if not all of them, allowed assuming that they’re under the reasonable caps. What we’re trying to do is really evaluate something that is difficult to quantify. You’re assessing performance, the value that it brings to a firm. It’s not easy to do but having all of that documentation in place up-front does give you a tremendous amount of flexibility in terms of how you award bonuses, the amounts, the different criteria that you use, and how you weight them. You’ve got an open slate but you just have to make sure that there are certain elements that are in place so that the plans will ultimately be accepted by the agencies.
TA: How much of your job is to not only make sure that clients are prepared and are taking the proper steps but also to explain to them the situation?
CD: A lot of this is very complicated stuff. Some of the rules don’t necessarily make sense on their face. It’s really hard when you have a conversation with a client about what is the difference between a bonus that’s simply based on ownership versus performance. It’s really hard sometimes for clients to break those two things apart because, at a lot of firms, the people that have the largest ownership are the ones that are driving the business. They’re the ones that deserve more of the bonus. For them, an easy way to just make that bonus decision is to pay it out based on the ownership that they hold. For them, it’s an easy process. Everyone can understand it. The problem is that’s specifically not allowed under the FAR. You can’t do it that way and I think if you just take a step by step approach to saying here is what’s critical in a bonus policy, here are the certain elements that you have to have, you’ve got the flexibility to design it. Hopefully, you can get to a place where it meets all of your company’s goals, and also the individual’s goals while making sure the State DOT’s and other agencies are comfortable with the amounts as well.
To listen to the entire interview, click here or use the Soundcloud player above.
DGC’s Architecture & Engineering Practice can take you through the bonus planning process, helping ensure you meet your goals while also minimizing risk. For more information, contact a member of your DGC engagement team or Chad DaGraca, CPA at 781-937-5376 / firstname.lastname@example.org.
To view our podcast archives, click here.