On July 6, 2016, the DOE (Department of Energy) quietly withdrew its April 1, 2014 proposed rule, “Contractor Business Systems—Definition and Administration. The April 2014 proposed rule which defined five business systems was modeled after similar business systems requirements imposed upon DOD Contractors (DFARS 252.242-7005 along with six interrelated regulations pertaining to each of the six business systems noting that the five DOE systems excluded MMAS). Also in common with DOD, the statement or mantra, that “Contractor business systems and internal controls are the first line in defense against fraud, waste and abuse. That statement was excessively used by the Commission on Wartime Contracting, a Bi-Partisan Commission whose August 2011 248-page report concluded that at least $31 billion and possibly as much as $60 billion was wasted in Iraq & Afghanistan from 2002-2008 ($4.4B to $8.6B annually; by comparison, Government agencies estimate annual improper payments exceeding $100 billion in each year 2009-2015).   If one bothers to read the 248-page report, one would also surmise that most of the waste resulted from government failures which notably includes one singular failure, the lack of any accountability for $6.6B of a $9.1B cash shipment.

Back to the DOE proposed and subsequently withdrawn contractor business systems’ rule, in 2013 DOE issued Policy Flash 2013-71 internally introducing the contractor business systems clauses, which was supplemented by a PowerPoint training file which described the system criteria and the system administration, notably, a 5% payment withhold applied if a contractor had a deficient business system.

blog-image-redstone.jpgBy any measure, the April 2014 proposed rule was an important (future) regulation designed to motivate DOE contractors to maintain compliant business systems, thereby establishing the front-line of defense against fraud, waste and abuse.  Fast-forward to July 6, 2016 when the once “flashy” requirement was quietly withdrawn with absolutely no stated reasons for inexplicably (by implication) leaving DOE without a front-line defense against contractor fraud, waste and abuse.

In the absence of a stated reason (or reasons) for this unexpected turn-of-events, we have performed exhaustive research in an attempt to identify the unstated reasons for DOE’s July 6, 2016 action. In the creative and somewhat whimsical opinion of Redstone Government Consulting, we’ve listed the top five (somewhat speculative) reasons which all have a common theme: (in reference to government acquisition):

  1. The DOE Program Manager, who had been tracking this proposed rule, retired on June 30, 2016 and only after this person retired did DOE realize that he/she had been maintaining all of the files and emails on a personal server.
  2. DOE has come to terms with the fact that most of its contracting problems are internal and implementing one more regulation to pass-the-buck (blame contractors) won’t have any impact on the billions wasted because of the changing political whims of Congress or the Administration (reference to the billions spent on nuclear waste sites, such as Yucca Mountain in Nevada, which was closed in 2011…per the GAO, the site was closed for political reasons and not for technical reasons).
  3. Knowing that DOE did not have the resources to audit for contractor compliance, DOE had hoped to follow DOD in terms of requiring DOE contractors to self-certify and to obtain independent third party audits of contractor business systems compliance. That “hope” was i) linked to a DFARS 2014 proposal (DFARS Case 2012-D042) and ii) “dashed” when the DFARS proposal was withdrawn with the terse explanation: “case closed with no further action on 02/04/2015”.
  4. DOE realized that the DFARS business systems rule was basically a ruse; in particular that DOD’s rule has imposed administrative requirements and costs without any measurable benefit (other than to perpetuate the myth that government contract fraud, waste and abuse can be eliminated by contractor internal controls as if such controls can overcome government failings).
  5. DOE has an effective organizational “moral compass” which won’t allow it to impose requirements on government contractors while knowing that the government does not live up to similar expectations (reference to the $100+B annually in improper payments and, in spite of spending billions for consulting services/outside “help”, the government’s inability to achieve auditable financial statements, a legal requirement, since 1997).


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Written by Michael Steen

Michael Steen Mike Steen is a Senior Advisor with Redstone Government Consulting, Inc. and a specialist in complex compliance issues to include major contractor cost accounting & business system regulations, financial compliance, resolution of DCAA audit issues, Cost Accounting Standards application, litigation support, and claims preparation. Prior to joining Redstone Government Consulting, Mike served in a number of capacities with DCAA for over thirty years, and upon his retirement, he was one of the top seven senior executives with DCAA. Mike Served as a Regional Director for two DCAA regions, and during that time was responsible for audits of approximately $25B and 800 employees. In October 2001, he was selected for the Senior Executive Service and in 2006 he received the Presidential Rank Award. During Mike’s tenure with DCAA, he was involved in conducting or managing a variety of compliance audits, to include cost proposals, billing systems, Cost Accounting Standards, claims, defective pricing, and then-evolving programs such as restructuring, financial capability and agreed-upon procedures. He directly supported the government litigation team on significant contract disputes and has prepared and presented various lectures and seminars to DCAA staff and business community leaders. Since joining Redstone Government Consulting in June 2007, Mike has developed and presented training and seminars on Government Contracts Compliance to NCMA, Federal Publications Seminars and various clients. Mike also is a prolific contributor of written articles to government contracting publications, as well as to our own Government Insights Newsletter. Mike also serves as the director of our training service offerings, with responsibilities for preparing and developing course content as well as instructing our seminars to clients and general audiences throughout the U.S. Mike also serves as a faculty instructor for the Federal Publications Seminars organization. Education Mike has a BS Degree in Business Administration from Wichita State University. He is also a graduate of the DCAA Director’s Fellowship Program in Management, and has a Masters Degree in Administration from Central Michigan University. Mr. Steen also completed a number of OPM’s management and executive development courses.

About Redstone GCI

Redstone Government Consultants are a team of the most senior industry veterans and the brightest new talent in the industry. Many have held senior government positions including leadership roles in the DCAA. Our new talents bring significant accounting and software experience along with fresh perspectives, inspiration and energy to our team. Through our leadership and combined experience, we provide a unique perspective, bringing both government and contractor proficiencies to bear and ensuring rock-solid government compliance for our clients.

Topics: Business Systems Review