RGCI-Maintaining Adequate Policies and Procedures for Government Contracts

On December 18, 2018 the Administrative Judge, in ASBCA No. 61583, denied the contractor’s appeal and granted the Government’s request for summary judgement related to the contractor’s claim that it was entitled to a penalty waiver because the contractor did not demonstrate that it “had adequate policies, training, controls, and review systems, and that it inadvertently incorporated the [unallowable cost]” in its incurred cost proposals. This decision serves as a reminder of the importance of maintaining adequate policies and procedures.

Policies and Procedures You Really Need to Focus On

For larger contractors covered by Cost Accounting Standards or subject to the Business System rules in DFARS 252.242-7006, written policies and procedures are specifically required in the regulatory guidance. For other contractors, although there is no specific regulatory requirement requiring formal written policies and procedures, the policies and procedures or lack thereof will certainly be considered by the Government when assessing accounting system adequacy. Generally, the Government, at a minimum, will expect policies and procedures, if applicable/costs are significant for:

  • Estimating
  • Overall accounting system/GAAP compliance
  • Timekeeping & labor distribution
  • Cost segregation of direct and indirect costs
  • Incentive compensation (bonuses)
  • Purchasing
  • Ethics
  • Travel & relocation
  • Accounting for unallowable costs
  • Capitalization & depreciation of tangible assets
  • Subcontract award and management

Why Polices and Procedures?

The purpose of policies and procedures are to promote achievement of organization objectives, help ensure consistency and compliance with regulatory requirements, prevent errors, and provide for appropriate business decisions. Policies and procedures are unique to each organization based on its needs and objectives and there is no one size fits all. Regulations do not specify the level of detail required for policies and procedures or provide specific criteria for defining adequacy. In general, the larger and more complex the organization, the more detailed policies and procedures the Government will expect the contractor to have. However, contractors also need to recognize that they will be held accountable for any requirement included in their policies and procedures.

More Does Not Always Mean Better

More complex policies and procedures may have a greater likelihood of noncompliance. In developing policies and procedures, contractors should avoid either adding additional requirements over and above the regulatory requirements or including any policies and procedures they do not intend to follow. With respect to the level of detail, no policy and procedure can consider every possible circumstance the contractor may face, so contractors should make sure the policies and procedures are flexible enough to ensure decision makers can make the right business decisions. Unfortunately, it is very difficult to defend the failure to follow your own policies and procedures in negotiations with the Government.

Reviewing Policies and Procedures

We recommend contractors review their policies and procedures at least annually to ensure they are adequate for compliance with government contract requirements, reflect actual behaviors and practices expected by management, and provide for appropriate business decisions.

Redstone is happy to assist with adequacy and compliance reviews of existing policies and procedures, policy and procedure revisions, and developing new policies and procedures where necessary.

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Written by Robert Eldridge

Robert Eldridge Robert (Bob) Eldridge is a Director with Redstone Government Consulting Inc. He provides Government Contract Consulting services to our Government contractors primarily related to compliance with Federal Acquisition Regulations and Cost Accounting Standards, equitable adjustment claims, and business systems. Prior to joining Redstone Government Consulting, Bob served in a number of capacities with DCAA for over 32 years. Upon his retirement, Bob was a Regional Audit Manager with DCAA. Bob began his DCAA career in 1981 as an auditor-trainee with the Pratt & Whitney Resident Office in West Palm Beach, Florida. Bob served two three year tours at the Defense Contract Audit Institute teaching multiple contract audit courses including “Auditing Internal Controls”, “Technical Management of Audits”, and “Advanced Cost Accounting Standards” and writing Agency courses on Cost Accounting Standards and Equitable Adjustment Claims. He returned to the Eastern Region in 1999, holding various audit positions before ultimately becoming a Regional Audit Manager in February 2007. As Chief of the Eastern Region Quality Assurance Division, Bob was heavily involved in developing DCAA guidance related to auditor consideration of internal controls and risk assessment preparation. In 2012, Bob was assigned to the U.S. Senate Committee for Homeland Security and Governmental Affairs, serving as a subject matter expert on a wide range of federal contract and grant matters for Senator Susan Collins. During Bob’s tenure with DCAA, he had overall management responsibility for audits performed by over 200 employees. He was directly involved in conducting or managing a wide variety of compliance audits, including: forward pricing proposals, incurred cost submissions, business system internal controls, Cost Accounting Standards, claims, and defective pricing. Bob was also directly involved in complex quantitative methods applications, particularly regression analysis and improvement curve applications. Bob currently specializes in assisting clients with more complex DCAA audit issues related to business system internal controls and Disclosure Statements and with developing and maintaining government compliant accounting and estimating systems. Bob also provides expert advice on compliance with FAR cost principles and Cost Accounting Standards and assists with the more complex forward pricing proposals and equitable adjustment claims.

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: Contracts Administration, Government Regulations