Contractors with cost reimbursable contracts that include the Allowable cost and payment clause, FAR 52.216-7 or Payments under Time-and-Materials and Labor-Hour contracts clause, FAR 52.232-7, are required to submit an Incurred Cost Proposal for each fiscal year costs were incurred on any cost reimbursable contract. This incurred cost proposal is provided to your Administrative Contracting Officer (ACO) and Defense Contract Audit Agency (DCAA) with a deadline of six months after the Contractor’s fiscal year end. Once the Incurred Cost Proposal is received by DCAA, they review it for adequacy. DCAA provides a notification to the Contractor, typically via email, that the proposal is deemed adequate for audit or outlines changes DCAA believes are necessary. That is great to know it is adequate for audit but what does that mean? This means that DCAA has reviewed the incurred cost proposal and determined that the schedules are properly completed for them to begin the audit potentially.
A Little Background
FAR Part 31, Cost Principles, is the regulation that government contractors must follow in order to account for cost on most government contracts. Within FAR Part 31 is FAR 31.205, Selected Costs. This part of the cost principles regulation specifically spells out unallowable cost that the government will not pay for under a government contract. This section starts at FAR 31.205-1 and goes all the way up to FAR 31.205-52. However, it should be noted that FAR 31.205-2, 5, 9, 24, 45, and 50 are “Reserved” – These reserved cost areas went the way of the dinosaur over time, hopefully not to return. For example, FAR 31.204-2, Automatic Data Processing Equipment Leasing Costs, required an annual demonstration that leasing computer equipment was cost-effective, i.e., lowest cost to the Federal Government.
Topics: Incurred Cost Submission, Contracts Administration, Defense Contractors, Government Compliance Training, Incurred Cost Proposals, Cost-Type Contracts, DCAA Audit Support, FAR, Government Regulations, DOD Contractors
Here are the Details
DoD issued DFARs Final Rule D2019-D029 – Treatment of Commingled Items Under $10K, effective October 1, 2020, to implement several sections of the National Defense Authorization Act for Fiscal Year 2017 that addresses treatment of commingled items purchased by contractors and services provided by nontraditional defense contractors as commercial items. This blog only addresses the DFARS change relative to the treatment of commingled items purchased by a contractor. The final rule is applicable to all solicitations and contracts, including solicitations and contracts using FAR Part 12 procedures for the acquisition of commercial items and solicitations and contracts valued at or below the simplified acquisition threshold.
Here are the Details
DoD issued a DFARs Final Rule D2019-D029 – Services Provided by Nontraditional Defense Contractors, effective October 1, 2020, to implement several sections of the National Defense Authorization Act for Fiscal Year 2017 that addresses treatment of commingled items purchased by contractors and services provided by nontraditional defense contractors as commercial items. This blog only addresses the DFARS change related to services provided by nontraditional defense contractors as commercial items.
Topics: Cost and Pricing and Budgeting, Defense Contractors, DFARS Business Systems, DCAA Audit Support, Contractor Purchasing System Review (CPSR), Government Regulations, DOD Contractors, FAR Part 12 Commercial Items
Defense Pricing Memo – September 30, 2020
Acting Principal Director, Defense Pricing and Contracting, Mr. Kim Harrington issued a memo on September 30, 2020 to announce that the Defense Contract Management Agency (DCMA) has a new Defective Pricing Pilot Team to provide support to Procuring Contracting Officers (PCOs) to resolve and disposition Defense Contract Audit Agency (DCAA) Truth in Negotiations Act (TINA) compliance audits. DCAA’s new favorite audit it appears. Reading a little into the memo (ok – not too much reading as the memo uses the word – backlog) DCAA has apparently created a new backlog for DoD of what they affectionately call TiN audits. Not a real surprise as DCAA created a TiN team a few years back. DCAA historically had an extensive workload development process to audit all large fixed priced contracts and sample smaller ones that created more audits than resources could accommodate. As we have reported before, now that DCAA is looking for work, the rush appears to be on for DCAA auditors to get back into more defective pricing audits.
Where Did This Come From?
National Defense Authorization Act (NDAA) of 2019, required the implementation of a new Federal Acquisition Regulation (FAR) rule barring federal contractors from using telecommunications products or services or video surveillance equipment from certain foreign companies – The People’s Republic of China. As a result, a new contract clause came into place – FAR 52.204-25, Prohibition on Contracting for Certain Telecommunications and Video Surveillance Services or Equipment – effective August 13, 2020.
DCAA Takes the Lead Over OFPP
In 2013, Congress put in place a new process for the calculation and publication of the compensation limitation (Cap) for all federal contractor employees. The process places the responsibility to calculate and publish the cap using the Bureau of Labor Statistics (BLS) Employment Cost Index (ECI) data on the Office of Federal Procurement Policy (OFPP). OFPP has failed in this responsibility for the last few years.
If your business pipeline is growing and you are issuing more subcontracts of higher values, Contractors should be aware that your organization has a duty under 48 CFR §22.805 to the Office of Federal Contract Compliance Programs (OFCCP).
Apportioning the Costs of Buildings
The SBA and Treasury have made it clear that if you own or lease a building that you sublet to another company, the portion of the lease or mortgage expense that can be used as nonpayroll costs for PPP loan forgiveness is limited to the share of the expense applied to the business who’s PPP loan is being forgiven. The simple example is, you lease an office building for $10,000 per month and sublease part of the space to another company for $2,500 per month. Only $7,500 would be used toward your nonpayroll cost for loan forgiveness. This proration applies to utility and other shared costs of the tenants.
As we wrap up another hectic year of working with contractors to prepare, review and submit their Incurred Cost Proposals, it had us questioning…“Why do so many contractors wait until the last minute of their deadline to submit? Is there an advantage to submitting at the last minute or is submitting at the last minute actually a disadvantage?”