FAR Subpart 2.1, Definitions, provides the meaning of two general groupings of cost not assignable directly to final cost objectives (i.e., not a direct contract cost):
The FAR establishes that when contracting by negotiation with the Government, the contractor should have an acceptable estimating system. FAR 15.407-5 provides that due to the benefits to both the Government and the contractor in reducing the scope of individual proposal reviews at contractors with an acceptable estimating system, the auditor (likely DCAA) should survey the system and provide a report to all contracting offices and contract administration offices doing substantial pricing activity with the contractor. This is a very open-ended requirement/expectation; therefore, DoD established a structure in the DFARS.
The language in the 2017 NDAA Sec 831, stating “Performance-based payments shall not be conditioned upon costs incurred in contract performance but on the achievement of performance outcomes …” has finally been incorporated into the DFARS (DFARS Case 2019-D002) with an effective date of April 8, 2020. The rule removes restrictions in DFARS 232.1001(a), DFARS 252.232-7012(b)(i), and DFARS 252.232-7013(b)(i) that limited performance-based payments to amounts not greater than costs incurred up to the time of payment. However, the rule does not alter the requirement for subcontractors/vendors to report costs incurred when requesting performance-based payments. The rule also removed the requirement of the subcontractor/vendor’s accounting system to comply with Generally Accepted Accounting Principles, as evidenced by audited financial statements.
UPDATE: On May 5th, SBA added FAQ #43 extending the safe harbor to May 14, 2020 and stating “SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020.”
In days gone by, knowing which contract administration office you needed to work with was as easy as finding your local Defense Contract Management Agency (DCMA) Office. DCMA used to accept and administrate pretty much all contracts, even other Federal Agencies with reimbursement of its services (e.g., NASA contracts). This is no longer the case; Over the last few years, DCMA has made a significant effort to stay focused on what it refers to as its core business – basically research, development, engineering, test, production, and spares for major acquisition programs. This leaves the administration of low value/low risk contracts, management and professional services contracts, architect-engineer services contracts, and many others to the buying command that issued them.
On April 8, 2020, Acting Principal Director for Defense Pricing and Contracting issued a memo providing guidance in support of DFARS Class Deviation 2020-O0013 – CARES Act Section 3610 Implementation. The Class Deviation provides language for DFARS 231.205-79, CARES Act Section 3610 – Implementation. The cost principle language makes costs of paid leave (including sick leave) allowable at the appropriate rates under the contract for up to an average of 40 hours per week and may be charged as direct to a contract.
On March 20, 2020, Acting Principal Director for Defense Pricing and Contracting issued a memo increasing the progress payment rate from 80% to 90% for large businesses and 90% to 95% for small businesses. The intent to increase cash flow to contractors running low on cash due to the impact of COVID-19. See DoD Class Deviation 2020-O0010 for details. The Defense Contract Management Agency is working to modify contracts as efficiently as possible. Clients may want to contact their respective ACO to assist by providing a complete listing of all impacted contracts.
The Office of the Under Secretary of Defense for Acquisition and Sustainment (OUSD(A&S)) is still in the process of working with DoD stakeholders and industry to finalize the development of the Cybersecurity Maturity Model Certification (CMMC). A stated on the OUSD(A&S) website: “The CMMC effort builds upon existing regulation (DFARS 252.204-7012) that is based on trust by adding a verification component with respect to cybersecurity requirements.” On March 13, 2020, Under Secretary of Defense Ellen Lord issued a statement on misleading cybersecurity certification information. She stated, “some third-party entities have made public representations of being able to provide CMMC certifications to enable contracting with DoD.” This is not a factual statement as “[t]he requirements for becoming a CMMC third-party assessment organization (C3PAO) have not yet been finalized.”
Back in the days of DCAA ICAPS audits, the billing system was a standalone audit program. Even DCAA’s first pass at auditing for compliance with DFARS 252.242-7006 provided a standalone sub-assignment for the coverage of contractor billing systems.