In the ASCBA Case 61691 Doubleshot, Inc. July 19, 2022 Decision, the Board supported what we believe is the correct reading of the records retention requirement under the FAR related to Cost-Reimbursable contracts. FAR 52.215-2, Audit and Records, requires contractors to make available until 3 years after final payment or any shorter period specified in Subpart 4.7.[1] FAR 4.705-2(b) limits the required retention period to 2 years from the end of fiscal year for pay related records (e.g., timesheet or cards).[2] So provided you submit your Incurred Cost Submission (required by FAR 52.216-7, Allowable Cost and Payment Clause) on time, you only need to maintain any of the records listed in FAR Subpart 4.7 for the time period set forth in that section of the FAR.
So, What Should a Contractor Do?
During your next regularly established policy review cycle/process, ensure your policies address the FAR 4.7 Record Retention Requirements. If you need to maintain certain records for a longer period to support an IRS requirement, document, and reference that requirement. Then, by all means, follow your policies and dispose of the records.
Yes – you need to have an established practice to review and update your policies and procedure on a set basis. Policies and procedures are not a one-and-done thing. Over time, requirements change, and your processes change, or maybe they should change as there is a better way to approach the process. No cats were skinned in the wording of this BLOG.
Couple Other Interesting Statements in the Decision
- “The Government references the incorporated Cost Estimating System Requirements clause (DFARS 252.215-7002) and the Material Management and Accounting System clause (DFARS 252.242-7004)… [and] … contends that these clauses required Doubleshot to correct the deficiencies upon notice. The Government fails, however, to discuss the actual language of these clauses or to specify how they apply to these facts.” Seeing as the issue at hand related to the accounting system (DFARS 252.242-7006), we guess the Government wanted to see what would stick. The Government also failed to consider the DFARS 252.242-7005, Contractor Business Systems, clause. While this clause may not have been included in the Doubleshot contract (likely as Doubleshot was not CAS covered), it still makes clear there is no requirement to make on-demand correction of deficiencies.
- “… the Government contends that Doubleshot did not submit its general ledger until December 29, 2015, which, in the Government’s view, means it is not appropriate to base the FAR 4.703(b) records maintenance extension on the date Doubleshot submitted its ICRPs. The Government suggests that a “more appropriate” rule would be “‘one day for each day the general ledger was not timely submitted. . .’” or until June 29, 2017 (gov’t resp. at 16-17). But this would require the Board to rewrite the regulation, which states that the extension is one day for each day that the ICRPs are untimely. FAR 4.703(b)(3). The regulation says nothing about extensions for late availability of general ledgers. We are not empowered to rewrite regulations.” Glad to see that the Board could not be convinced to start rewriting regulations.
- “… Doubleshot observes in its motion, FAR 31.201-2(d) does not require time cards to be signed (app. mot. at 4). The Government does not challenge this in its brief or provide other support for a requirement that time cards be signed. We consider the issue to have been waived.” While we totally agree there is no regulatory requirement to have employees sign their time cards, we question whether this is a fight worth having with DCAA. The likely outcome is continuing battles over timekeeping controls and you could end up in the high-risk pool year after year – requiring you to expend resources to support incurred cost audits that DCAA’s own report to Congress shows have less than 1% recovery. Most electronic timekeeping systems already support an employee signing or at least an acknowledgement of their time, so discretion is the better part of valor here.
Our Takeaway
Disposition your records regularly in accordance with your policy (i.e., delete them).
On a personal note, our own experience and the horror stories of our clients show that email folders and the laptop hard drive of each employee collect copies of documents that should be cleaned out regularly. Have a "make some e-space day" at least annually.
Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations and supporting contractors from contract award to contract closeout. We would be happy to be part of your team.
[1] FAR 52.215-2 Audit and Records-Negotiation
(b) Examination of costs. If this is a cost-reimbursement, incentive, time-and-materials, labor-hour, or price redeterminable contract, or any combination of these, the Contractor shall maintain and the Contracting Officer, or an authorized representative of the Contracting Officer, shall have the right to examine and audit all records and other evidence sufficient to reflect properly all costs claimed to have been incurred or anticipated to be incurred directly or indirectly in performance of this contract. This right of examination shall include inspection at all reasonable times of the Contractor’s plants, or parts of them, engaged in performing the contract.
(f) Availability. The Contractor shall make available at its office at all reasonable times the records, materials, and other evidence described in paragraphs (a), (b), (c), (d), and (e) of this clause, for examination, audit, or reproduction, until 3 years after final payment under this contract or for any shorter period specified in subpart 4.7, Contractor Records Retention, of the Federal Acquisition Regulation (FAR), or for any longer period required by statute or by other clauses of this contract. …
[2] FAR 4.704 Calculation of retention periods
(a) The retention periods in 4.705 are calculated from the end of the contractor’s fiscal year in which an entry is made charging or allocating a cost to a Government contract or subcontract. If a specific record contains a series of entries, the retention period is calculated from the end of the contractor’s fiscal year in which the final entry is made. The contractor should cut off the records in annual blocks and retain them for block disposal under the prescribed retention periods.
FAR 4.705-2 Pay administration records
(b) Clock cards or other time and attendance cards: Retain 2 years.
John is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to the DFARS business systems, CAS Disclosure Statements, and DCAA/DCMA compliance preparation, advisory, and defense. Prior to joining Redstone Government Consulting, John served in a number of capacities with DCAA/DCMA for more than 30 years. Upon his retirement, he was based in Texas as an SES-level Corporate Audit Director for DCAA, managing a staff of 300 auditors at one of the largest DOD programs. Professional Experience John began his career in the late 80s working in the Clearwater, FL audit office and over the next three decades he progressed through a number of positions within both DCAA and DCMA with career highlights as DCAA Program Manager at Ft. Belvoir, Chief of Technical Programs Division, Deputy Assistant Director-Policy, Director of the DCMA Cost and Pricing Center, the SES-level Lockheed Martin Corporate Audit Director, and Director of Integrity and Quality Assurance. John’s three decades of experience in performing and leading DCAA auditors and DCMA reviewers provides a wealth of expertise to our clients. John’s role, not only in the performance of audits, but also in the development of audit policy affords him unique insights into the defense of audit findings and the linkage of audit program steps to the underlying regulatory framework. He is an expert in FAR, DFARS, and other agency acquisition regulation, as well as a subject matter expert in the Cost Accounting Standards having reviewed and provided audit feedback on many of the largest and most complex cost accounting practices during his tenure with the DCAA. John’s tenure with DCAA and DCMA came at a critical time during each agency’s history where a number of changes were occurring such as the response to the ICS backlog, development of audit approaches to the DFARS Business Systems and implementation of new audit initiatives as a result of Congressional oversight through the NDAA process. John’s leadership at the DCMA Cost & Pricing center saw oversight of all major DOD pricing actions, leadership of should cost review teams, the Commercial Pricing group and many other areas of strategic value to our clients. His involvement in these and other Agency initiatives is of great value to our clients due to his in depth understanding of DCAA and DCMA’s internal policy directives. Education John holds a Master of Business Administration and a B.A. in Accounting from the University of South Florida. Certifications Certified Information Systems Auditor State of Alabama Certified Public Accountant