Why does the government penalize a contractor for paying cash in lieu of benefits?
The spirit and intention behind providing Health and Welfare allocations in government contracts is three-fold: 1) to provide “bona fide” pre-tax benefits to government contract employees free of cost to the contractor and the employee; 2) to allow the contractor to install a Health and Welfare program with mandatory participation; and 3) to level the playing field between union and non-union contractors. As such, government contracting guidelines clearly favor providing “bona fide” Health and Welfare fringe benefits instead of paying cash.
