DOD IG ruling

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.

The November 22, 2013 report asserts that the MDA and DMEA inconsistently applied the interim FAR regulations which require agencies to support awards of cost reimbursement contracts by documenting that those awards were justified, properly approved, suitable for transition to firm-fixed-price contracts in the future, evaluated to ensure Government resources were available for administration, and made to contractors with adequate accounting systems. Conclusions are supported by the IG’s finding that 72 out 88 reimbursable contracts reviewed (contracts valued at $528 million) were not adequately documented.

Consistent with the preconceived legislative and executive government departments’ assumption that cost reimbursable contracts automatically open the door for government contractor overruns, the IG report concludes that government procurement agencies’ failure to document these awards “may inappropriately increase DOD’s contracting risks because cost reimbursement contracts provide less incentive for contractors to control costs”.

The report is the third the DOD IG has released in 2013, the first two of which also found that the Army and Air Force procurement commands neglected to follow documentation rules for awarding reimbursable contracts (DODIG-2013-120, August 23, 2013 & DODIG-2013-059, March 21, 2013). DOD procurement activities are not alone in being analyzed for compliance with these FAR provisions—example, the Department of Transportation IG issued an August 2013 report noting that “high risk” reimbursable contracts were being awarded without adequate justification, thereby subjecting the government to waste and misuse of taxpayer funds.

The cascade of government watchdog agency reports bashing government agencies for documentation deficiencies will continue as long as government contracting officers are allowed the luxury of judgment in choosing the level of documentation for awarding reimbursable contracts, and may in fact never cease as long as cost reimbursable contracts are an acceptable vehicle for procuring services and supplies from the private sector.

Written by Darryl Walker

Darryl Walker Darryl Walker is a Emeritus Advisor for Government Compliance with Redstone Government Consulting, Inc., and formerly served as an Owner and Technical Director for the Beason & Nalley Government contract consulting group for over ten years. He provides content for our Government Insights Newsletter, provides training courses to government contractor and business community leaders, and consults with government contractors regarding a vast range of issues including cost proposals and presentations, internal controls, proposal preparation, compliance with the FAR and Cost Accounting Standards, litigation support, specialized claims, defective pricing issues, liaison with procurement and DCAA audit officials, and accounting and management systems compliance. Prior to joining Redstone Government Consulting, Darryl worked with the Defense Contract Audit Agency (DCAA) for almost 34 years in a variety of technical and management capacities. During his tenure with DCAA, Darryl provided audit services to a wide range of government agencies, including the Department of Defense, NASA, Department of Energy, Department of Interior, General Services Administration, and Department of Justice. During his experience with DCAA, Darryl audited over 3,000 government contractors throughout the Southeastern United States, Europe, and the Middle East. Education Darryl is a graduate of Texas Wesleyan College with a major in accounting and minor in economics.

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Topics: Defense Contractors, DOD IG