A recent DoD-IG (Department of Defense-Inspector General Report (DODIG-2019-070) has unfortunately reinforced DCAA’s audit interpretations of the reasonableness of contractor compensation (reference to FAR 31.205-6(b)). The IG (apparently with help from DCAA) reviewed ACO (Contracting Officer) actions to resolve/disposition DCAA (Defense Contract Audit Agency) advisory audit reports which included assertions that contractors had claimed unreasonable compensation (primarily for contractor executives).
In a July 18, 2014 blog, we noted that a summation from a recent DOD-IG report (DODIG-2014-088) indicated that DLA (Defense Logistics Agency) had potentially overpaid about $9 million on 33 of 35 spare parts which were sole-sourced to the particular government contractor. At the time, we only had the summary conclusion (the report was non-releasable); however, we recently obtained (through FOIA) a redacted copy of the DOD-IG report and that provides more clarity in terms of the alleged failings of DLA. Coincidentally, we’ve recently read an article (Defense E-Brief published by NDIA) which emphasized that the Pentagon is putting defense contractors on notice that DOD contracting officers will demand fair prices for commercial items.
Although the DODIG report (DODIG-2014-088) was not released because of FOUO (For Official Use Only) restrictions, the summary statements published by the DOD-IG suggest that the DOD-IG has absolutely no interest in adhering to the long-standing acquisition principles concerning commercial items and commercial item pricing (wherein the price is the price and the contractor’s profit or loss is not a factor). The DOD-IG reported that a government contractor had significantly over-charged the government for spare parts for certain military helicopters (which presumably have commercial variants); specifically, that DLA (Defense Logistics Agency) had potentially overpaid about $9 million on 33 of 35 spare parts which were sole-sourced to the particular government contractor. To preclude this from recurring, the DOD-IG recommended a DOD acquisition policy “to establish a percentage of commercial sales that is sufficient to determine fair and reasonable prices when items are being acquired on a sole-source contract and market-based prices are used”. Translated, the DOD-IG wants DPAP (Defense Procurement Acquisition Policy) to provide percentages of commercial sales (presumably versus sales to the Government) to “add clarity” to the FAR 2.101 definition of items or services customarily used by the general public or by non-government entities.
In what seems to be a never-ending whipping of government contracting agencies for issuing cost reimbursement contracts to contractors, the Department of Defense Inspector General (DODIG) issued a report citing the Missile Defense Agency (MDA) and the Defense Microelectronics Activity (DMEA) for circumventing regulations requiring documentation supporting the award of cost reimbursable contracts. The reported findings only cite contracting agency documentation lapses and do not, as with other IG reports on this subject, set forth any factual information or examples that connect the documentation deficiencies to actual government contractor cost overruns or misuse of contract funds.