Where does DCAA’s View of the Contractor and their Role in Acquisition Come From?
DCAA Auditor Training
DCAA website provides that new auditors receive in-depth professional training from DCAA’s Defense Contract Audit Institute (DCAI), along with on-the-job training at their assigned field audit office. DCAI is located in Atlanta, GA and provides auditors with an excellent basis on which to start their careers in contract audit. Many at Redstone GCI can speak from personal experience that, once you get past the exciting MARTA ride from the airport, the instructors at DCAI provide a good hands-on learning environment. However, we are not sure if it is a subliminal message piped into the classroom or local indoctrination at assigned field offices, but the auditors are coming away with the impression that no contractors can be trusted, and a good audit opinion has to include questioned cost.
DCAA Mission Statement
The DCAA Strategic Plan FY 2021 – FY 2025 states the DCAA mission is: “Together with … [DCAA’s] acquisition partners, … [DCAA] increase[s] warfighter capabilities by delivering high quality audits and financial services to achieve fair and reasonable prices that protect taxpayer dollars.” It goes on to clarify that: “As stewards who look out for taxpayers’ interests, … [DCAA] conduct high quality contract audit services to ensure that the government is paying fair prices for what … [US Government] buys.” While this is a little bit of a change from the DCAA mission focus solely on being the protector of the taxpayer, we are still not sure it completely lines up with the auditing standards exceptions of providing an independent and objective audit opinion to allow the user of the audit report (i.e., the warranted Government Official) to make a reasonable and informed business decision (i.e., the contracting officer’s decision in support of US Government acquisition). It is also more than a little concerning that, yet again, DCAA received a Peer Review report from the DoD-IG with an opinion of “pass with deficiencies” (External Peer Review of the Defense Contract Audit Agency System Review Report – Report No. DODIG‑2021‑059, Dated March 5, 2021). The Peer Review Report states in part: “[DoD-IG] identified 33 findings among 25 of the 60 selected audits that involved evidence and reporting deficiencies, which clearly impacted the reliability of the underlying audit reports. For example, 19 of the 33 findings involved DCAA auditors not obtaining sufficient and appropriate evidence to support conclusions used as a basis for the opinion expressed in … [their] report. Therefore, the users’ ability to rely on the report was negatively impacted.”
So, what is the Impact of this less-than Objective Thinking on the part of the Auditors and less than adequate audit effort – in the DoD-IG’s Opinion
DCAA auditors have become very creative in coming up with audit findings and if all else fails questioning costs based on reasonableness or lack of documentation. FAR 31.201-3, Determining reasonableness has become the fallback position for any questioned cost in which the auditor cannot find a better, more relevant regulation to apply to questioned cost. We have also seen DCAA auditors trying to turn FAR Instructions to contracting officers into contract terms and use this non-regulatory basis to question very large dollar amounts. (See Our Prior Blog – DCAA Rewrites FAR 42.202: Primes Now Responsible for Auditing Subcontractors (redstonegci.com))
December 2016 ASBCA Decision
Back in 2014, when DCAA finally got around to auditing cost incurred for 2007, DCAA questioned over $80M in subcontract cost for Lockheed Martin. DCAA questioned the cost based on FAR 42.202 instruction to contracting officers to expect prime contractors to manage subcontractors. Fortunately, in the subsequent ASBCA Cases 59508 & 59509, the Board found “Notably, nowhere in either complaint or COFD does the government cite to a contract term giving rise to a contractual obligation or duty. As the government conceded in its briefs, FAR 42.202 is not a term of the contract.” In the end the Board dismissed the Government’s claim based on the less than supported audit position. At least, this poor audit position got to the Board and a clear decision on it was made.
What if the Board or Court does not get a chance to weigh-in?
If the Board or Court does not get an opportunity to put to rest some extremely concerning DCAA audit positions, the contractor is stuck in a never-ending loop. DCAA continues to question significant cost, DCMA ACOs supports the findings due to pressure from DCAA management and DoD-IG reports (Evaluation of Defense Contract Management Agency Actions Taken on Defense Contract Audit Agency Report Findings Involving Two of the Largest Department of Defense Contractors – DoD-IG-2021-056, Dated February 26, 2021), and then DCMA attorneys have grave concerns about how they will fare – and the loop continues. All of this involves significant time and money on the part of both the contractor and the Government. While a specific amount cannot be necessarily determined, the cost to the contractor is passed on to US Government in on-going contracts. It is a shame neither Defense Pricing and Contracting (DPC) nor the DoD Comptroller have stepped up realign-in DCAA.
Recent ASBCA Decision, Dated March 1, 2021
A clear example of the situation above is laid out in the recent L3 Technologies, Inc. cases dismissed as moot by the Board. The cases in question dealt mostly with DCAA’s use of statistical sampling and extension of FAR 31.201-3, Determining reasonableness, to travel related costs. ASBCA Nos. 61811, 61813, 61814 starts it majority opinion by stating:
These three appeals, submitted by appellant, L3 Technologies, Inc. (L3), involve government claims challenging both indirect and direct costs paid to L3 on several government contracts for certain years. As the litigation progressed, the government apparently thought better of its claims and withdrew them in toto [Latin, for on the whole] and represented it would make no further claims on the contract years in question. Consequently, the government has moved for dismissal of these appeals on mootness grounds. L3 opposes, seeking either summary judgment in its favor or that … [the Board] deny the motion to dismiss and keep the appeals live so that it can obtain a victory that, it believes, would preclude its suffering similar government claims in other contract years. On the facts before us, we grant the government’s motion and dismiss these appeals as moot. L3’s motion for summary judgment is denied.
In referencing the Government’s Unequivocal Withdrawal of its Contracting Officer’s Final Decisions, the Board wrote: “Ultimately, as admitted in a February 28, 2020 email from government counsel to L3’s attorney, the government decided that it could not defend these appeals.” In a dissenting opinion Judge Clarke states: “The majority decision subjects L3 (and other contractors) to the unfortunate chain of events discussed below until DCAA and DCMA resolve whatever their differences are.” Judge Clarke believed the Board needed to address the interpretation of FAR 31.201-3, Determining reasonableness, to properly allocate the burden of proof. Judge Clarke also pointed to the continuing loop pointed to above:
In its opposition to DCMA’s motion to dismiss, L3 summarizes similar audit disputes between L3 and DCAA/DCMA from 2006 through 2018. These disputes all followed a similar path: DCAA conducts Audits challenging costs, DCMA issues COFDs implementing the DCAA Audits and demanding repayment of the challenged costs, L3 appeals the COFDs to the Board and DCMA either withdraws the COFDs or the parties settle for a nuisance amount resulting in dismissal of the appeals with prejudice. The disputes involved in this decision followed a similar path but remain unresolved. There are several similar appeals that have been stayed pending resolution of the appeals in ASBCA Nos. 61811, 61813 and 61814.
When will it end? We're sorry to say, no time soon based on what we have seen. It appears the only path to resolution is to take issues to the Board or Court, which we all know is costly and time consuming, and therefore not likely to happen. In our opinion, this is what DCAA is counting on. Even if the contractor does press the issue, as shown above, the Government attorneys run away from the issue leaving the auditors to start the loop over and over again.
Redstone GCI is available to assist contractor’s in assessing DCAA audit findings and aiding in audit rebuttals. Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations in applying FAR Part 31, Cost Principals and Cost Accounting Standards.