Propriety of Retirement Contributions Clause in Personal Services Contract

An authorized certifying officer of the Agency for International Development (AID) requested an advance decision on the propriety of a clause concerning retirement contributions, in addition to social security, in an individual's personal services contract. AID and the individual entered into an agreement whereby the individual was to provide her services, as a rural development specialist, to assist a foreign government. The contract was for 1 year with plans to extend the contract for at least 1 more year. The estimated contract amount included the AID contribution under the Federal Insurance Contributions Act (social security) on the individual's behalf. When the contract was amended to extend her services for 1 year, it retained the social security contribution and, in addition, contained a clause stating that the individual would be paid a retirement allowance in an amount equivalent to that paid by the Government for an AID direct hire. The certifying officer questioned: (1) whether the contracting officer exceeded his authority by authorizing retirement contributions to both an individual retirement plan and social security; and (2) whether the allowance would be a part of the salary package or independent of the salary offer. GAO found that the contracting officer did not exceed his authority by negotiating the clause, even though the clause may not be in accordance with Agency policy to equate the benefits of direct hires and personal services contractors since direct hires cannot enjoy the advantage of contributions to two retirement funds. The retirement allowance provided for in the amendment is a part of the individual's salary. The mere fact that it is itemized as an allowance does not alter the nature of the allowance as part of her compensation. As to the tax consequences of that amount being paid into an individual retirement account or plan, those are matters for determination by the Internal Revenue Service. Accordingly, payment of the retirement allowance may be made to the individual.