An associate of mine recently asked me if, in my opinion, H1B visa application costs are allowable and recoverable. After thinking about it for a few seconds, I answered "yes" although there is no specific guidance on this particular cost contained in the Federal Acquisition Regulations (FAR).
When it comes to the topic of cost allowability, the FAR includes Part 31.205 "Selected Costs". Notice the word "selected". This denotes that not all costs incurred in the normal course of doing business are covered by the clause that has been around since Part 31.205 was first incorporated into the FAR in April of 1984. Costs that are not specifically identified (and there are many) need to pass an allowability litmus test to be considered allowable. These allowability criteria include reasonableness, allocability, and compliance with applicable regulations and contract terms.
Let's examine why I believe H1B visa costs are allowable. According to the Department of Labor, "The H-1B program applies to employers seeking to hire nonimmigrant aliens as workers in specialty occupations...of distinguished merit and ability. The intent of the H-1B provisions is to help employers who cannot otherwise obtain needed business skills and abilities from the U.S. workforce by authorizing the temporary employment of qualified individuals who are not otherwise authorized to work in the United States."
Therefore, one can conclude that a government contractor who is looking to hire specialized expertise to perform a contract's statement of work must look far and wide to fill the desired labor categories, hence the need for H1B visas. Without specific guidance from the FAR, let's further examine the case for allowability:
1. Reasonableness
While this criterion is somewhat subjective, "a cost can be considered reasonable if, in its nature and amount does not exceed what would be incurred by a prudent person in the conduct of competitive business." Furthermore, reasonableness "depends upon a variety of considerations and circumstances, including"
(1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor’s business or the contract performance;
(2) Generally accepted sound business practices, arm’s-length bargaining, and Federal and State laws and regulations;
(3) The contractor’s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and
(4) Any significant deviations from the contractor’s established practices.
Given the above, the cost of obtaining an H1B visa meets the test of reasonableness.
2. Allocability
A cost is allocable if it is assignable or chargeable to one or more cost objectives based on relative benefits received and-.
"(1) Is incurred specifically for the contract;
(2) Benefits both the contract and other work, and can be distributed to them in reasonable proportion to the benefits received; or
(3) Is necessary to the overall operation of the business, although a direct relationship to any particular cost objective cannot be shown."
The cost of obtaining an H1B visa meets the above criteria.
3. Compliance with Cost Accounting Standards
The Cost Accounting Standards (CAS) apply to the contract when an award is CAS-covered. This also includes consistency in how costs are estimated, accumulated, and reported. Not surprisingly, and because CAS is largely based on the FAR, there are no references to the cost of obtaining H1B visas within the Cost Accounting Standards.
4. Terms of the contract
This is the "catch-all" criterion for allowability and includes adherence to any specific limitations or exclusions outlined in the contract. If the contracting officer agrees that the cost of an H1B visa is necessary for the performance of the contract, then the cost can be written into the contract. This is true even if there is guidance that deems a particular cost to be unallowable. An example of an expressly unallowable cost that can be allowed under the terms of a contract is alcoholic beverages. Such costs can be made allowable in contracts that involve shipbuilding, and include "costs of keel laying, ship launching, commissioning, and roll-out ceremonies, to the extent specifically provided for by contract." In other words, that bottle of Champaign which is smashed against the hull is an allowable cost when written into the terms of the contract.
To conclude, the above criteria collectively ensure that the government reimburses contractors for costs that are fair, appropriate, and in compliance with regulatory and contractual requirements. In making the argument for recovery of H1B visa costs as either a direct or indirect (overhead) charge, this should be considered to be a reasonable, allocable, and compliant cost.
And, if the DCAA auditors were to disagree, then be certain to politely ask them to cite the regulation.
