FAR 52.237-10—Identification of Uncompensated Overtime.
Plain-English Summary
FAR 52.237-10, Identification of Uncompensated Overtime, is a solicitation provision used when the Government wants offerors to disclose and properly price labor that includes uncompensated overtime. It defines key terms such as adjusted hourly rate and uncompensated overtime, explains how to convert a 40-hour base rate into a rate that reflects extra hours worked without additional pay, and requires that all proposed labor hours be identified as regular or overtime at the same level of detail for both prime and subcontract proposals. The provision also requires consistency between the offeror’s estimating practices and its cost accounting practices for accumulating and reporting uncompensated overtime, and it directs evaluators to consider unrealistically low labor rates and other cost realism concerns in a risk assessment for award. In addition, offerors must submit their policy on uncompensated overtime with the proposal. In practice, this provision is meant to prevent understated labor pricing, improve transparency in labor-hour proposals, and give the contracting officer a basis to evaluate whether proposed labor rates are realistic and supportable.
Key Rules
Adjusted rate must be used
When uncompensated overtime exists, the offeror must use the adjusted hourly rate, not the straight hourly rate, for all proposed hours. This applies to both regular and overtime hours so the pricing reflects the actual average cost of the labor being proposed.
Uncompensated overtime definition
Uncompensated overtime is time worked beyond an average of 40 hours per week by direct-charge employees who are exempt from the Fair Labor Standards Act and who do not receive extra compensation for those additional hours. Paid leave such as holidays, vacation, and sick leave counts as part of the normal work week when calculating uncompensated overtime.
Labor hours must be identified
All proposed labor hours subject to the adjusted rate must be broken out as regular or overtime hours by labor category and described with the same level of detail. This disclosure requirement applies to prime and subcontract proposals alike, including uncompensated overtime hours that appear in indirect cost pools for employees whose normal hours are charged direct.
Accounting practices must match
The offeror’s estimating practices for uncompensated overtime must be consistent with the cost accounting practices used to accumulate and report those hours. The Government is looking for alignment between how the offeror prices the work and how it actually tracks labor in its books and records.
Cost realism and risk review
Proposals with unrealistically low labor rates, or proposals that otherwise fail to demonstrate cost realism, may be evaluated as higher risk. The contracting activity can use that risk assessment in making the award decision, so low pricing alone does not guarantee a favorable evaluation.
Policy must be submitted
The offeror must include a copy of its uncompensated overtime policy with the proposal. This gives the Government insight into how the contractor manages overtime practices and whether the policy supports the proposed labor pricing and accounting approach.
Responsibilities
Offeror / Contractor
Identify whether uncompensated overtime exists, calculate and apply the adjusted hourly rate, break out labor hours as regular or overtime by labor category, ensure proposal pricing matches accounting practices, submit the uncompensated overtime policy, and avoid proposing unrealistically low labor rates that could create cost realism risk.
Contracting Officer
Include the provision when prescribed, review the proposal for proper identification of uncompensated overtime, assess whether the proposed rates and labor-hour structure are realistic, and consider any pricing or accounting inconsistencies in the award risk assessment.
Evaluators / Source Selection Team
Examine whether the offeror’s labor rates, labor-hour breakdowns, and policy submission support a realistic proposal, and document any risk associated with low rates or inconsistent treatment of uncompensated overtime.
Subcontractors
Provide labor-hour and pricing information at the same level of detail required of the prime when their proposed work includes uncompensated overtime, so the prime can submit a compliant proposal.
Agency / Acquisition Activity
Use the provision where prescribed by FAR 37.115-3 and ensure solicitation instructions clearly require the disclosures needed to evaluate labor pricing and cost realism.
Practical Implications
Offerors cannot simply price a 45-hour workweek as if all 45 hours were paid at the 40-hour rate; they must convert to an adjusted hourly rate or risk understating labor cost.
A common pitfall is failing to distinguish between direct labor employees who are exempt from FLSA and other employees, or forgetting that paid leave counts in the normal workweek calculation.
Another frequent issue is inconsistency between proposal assumptions and the contractor’s accounting system; if the books do not track uncompensated overtime the way the proposal assumes, the Government may question the realism of the offer.
Prime contractors must ensure subcontractors provide the same level of detail, because missing subcontract labor-hour identification can make the entire proposal noncompliant or harder to evaluate.
Submitting a clear uncompensated overtime policy is not just a paperwork exercise; it helps the Government judge whether the proposed labor mix, rates, and staffing approach are credible and sustainable.
Official Regulatory Text
As prescribed in 37.115-3 , insert the following provision: Identification of Uncompensated Overtime (Mar 2015) (a) Definitions . As used in this provision- Adjusted hourly rate (including uncompensated overtime) is the rate that results from multiplying the hourly rate for a 40-hour work week by 40, and then dividing by the proposed hours per week which includes uncompensated overtime hours over and above the standard 40-hour work week. For example, 45 hours proposed on a 40-hour work week basis at $20 per hour would be converted to an uncompensated overtime rate of $17.78 per hour ($20.00 x 40 divided by 45 = $17.78). Uncompensated overtime means the hours worked without additional compensation in excess of an average of 40 hours per week by direct charge employees who are exempt from the Fair Labor Standards Act. Compensated personal absences such as holidays, vacations, and sick leave shall be included in the normal work week for purposes of computing uncompensated overtime hours. (b) (1) Whenever there is uncompensated overtime, the adjusted hourly rate (including uncompensated overtime), rather than the hourly rate, shall be applied to all proposed hours, whether regular or overtime hours. (2) All proposed labor hours subject to the adjusted hourly rate (including uncompensated overtime) shall be identified as either regular or overtime hours, by labor categories, and described at the same level of detail. This is applicable to all proposals whether the labor hours are at the prime or subcontract level. This includes uncompensated overtime hours that are in indirect cost pools for personnel whose regular hours are normally charged direct. (c) The offeror’s accounting practices used to estimate uncompensated overtime must be consistent with its cost accounting practices used to accumulate and report uncompensated overtime hours. (d) Proposals that include unrealistically low labor rates, or that do not otherwise demonstrate cost realism, will be considered in a risk assessment and will be evaluated for award in accordance with that assessment. (e) The offeror shall include a copy of its policy addressing uncompensated overtime with its proposal. (End of provision)