RGCI - More to Report if You Have DOD Service Contracts

On July 9th, 2021, the Department of Defense (DoD)issued a final rule in the Federal Register to implement 10 U.S.C. 2330a which requires the DoD to establish a data collection system to provide certain management information about an awarded contract or task order that is valued in excess of $3 million. This new rule is applicable for the following service acquisition portfolio groups:

  • logistics management services
  • equipment-related services
  • knowledge-based services
  • electronics and communications services

You may read the entire rule here.

The DoD had previously published a proposed rule (DFARS Case 2012-D051 in the Federal Register on June 5, 2014) which required the DoD to create a data collection system to be able to report distinct data for services being purchased by the DoD. The proposed rule had requirements for contractors to input the data into a system specifically for DoD contracts. This system was known as the Enterprise Contractor Manpower Reporting Application (ECMRA).

Under the final rule, however, (effective July 9th, 2021) the DoD has adopted the service contract reporting process that is used by other Federal agencies and does not require contractors to report data in the ECMRA. The change allows the DoD to use the Federal Procurement Data System (FPDS) as its primary source for information required by 10 U.S.C. 2330a. The rule acknowledges that “FPDS does not provide data on direct labor hours expended and dollar amounts invoiced for contracted services.” As a result, the final rule requires contractors, subject to the new rule, to input labor hours expended and dollar amounts invoiced into SAM (other Federal agencies use this same process).

To alleviate the burden and reduce the effect for contractors and subcontractors, the final rule will “require contractors to report the total number of hours worked (both contractor and subcontractor) under the contract for the entire fiscal year and does not require a breakdown of those hours by employee type or by subcontractor”. Reporting subcontractor data is only required of first-tier subcontractors, which is in line with the FAR requirement for service contract reporting. The final rule leaves the process for collecting subcontractor data up to the consideration of each contractor. The rule does not mention a clear-cut process that contractors must use to collect this data on subcontracts. There is also no mention of a reporting requirement for subcontractors via the flow-down of the contract clause. That said, for any contractors or subcontractors that have service contracts subject to the new rule and do not already have a policy/process in place to accurately track hours and amounts billed for service contracts (including subcontractor hours and amounts) we recommend the development of a policy/process. Policies and procedures should address how the company will accurately track hours and amounts billed on their service contracts as well as a requirement to routinely reconcile the accumulated number of hours and billed amounts back to their source documents to ensure accurate reporting. If there are already policies in place that allow someone to track hours and amounts billed on service contracts, we suggest testing the procedures in place specifically relating to service contracts to ensure accurate reporting for this new requirement.

Are Contracted Services that Meet the Definition of Commercial Items Exempt?

“The final rule does not apply the requirements of 10 U.S.C. 2330a to commercially available off-the-shelf items (COTS), but it does apply the rule to contracts for the acquisition of commercial items.”

Are Firm Fixed Price Service Contracts Exempt From the Reporting Requirement?

Per paragraph (b) of 10 U.S.C.2330a, “the data required to be collected under the statute does include service contracts and orders that contain firm fixed prices for the specific tasks to be performed.” As a result, firm fixed price contracts for the services subject to the new rule will not be exempt under the rules for DFARS Case 2018-D063.

Does the Final Rule Clarify those Services Providing Necessary Support to a Lease or Rental Contract?

“It is expected that contracts for equipment-related services with a total estimated value, including options, exceeding $3 million will be reported in SAM.”

Does the Required Reporting System Have a Goal of Minimizing the Burden to Small Businesses?

The requirement for data collection was designed to maximize the use of existing records that are currently being maintained by contractors and by the Government. To reduce the effect on small business even more, the DoD is implementing the existing system and process that is used by the rest of the Government to acquire the requisition data from contractors, which helps ensure a more uniform and routine reporting requirement. The data will be collected electronically and there are help-desk support and user guides available for SAM. The reporting requirements are confined to a small set of data elements to help make the reporting as straightforward as possible. To help minimize the effect for both contractors and subcontractors the rule requires “contractors to report only the total number of hours (both contractor and subcontractor) worked under the contract for the entire fiscal year and does not require a breakdown of those hours by employee type or by subcontractor.” Also, they raised the threshold for reporting to $3 million from the simplified acquisition threshold and narrowed the data reporting to only four service acquisition portfolio groups.

Is the Requirement to Report Subcontractor Data Limited to First-Tier Subcontractors?

“First-tier subcontract means a subcontract awarded directly by the contractor for the purpose of acquiring services for performance of a prime contract. It does not include the contractor's supplier agreements with vendors, such as long-term arrangements for materials or supplies or services that benefit multiple contracts and/or the costs of which are normally applied to a contractor's general and administrative expenses or indirect costs.”

Reporting subcontractor data is only required to first-tier subcontractors. The intent of this rule is for contractors to report all direct labor hours that were expended in carrying out the contracted services during the previous fiscal year. All the hours input into SAM should include the combined total of the number of direct labor hours the contractor expended in carrying out the contracted services as well as the number of direct labor hours the contractor’s subcontractor expended.

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Written by Redstone Team

About Redstone GCI

Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals.

Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs.

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Topics: Compliant Accounting Infrastructure, Small Business Compliance, Contracts & Subcontracts Administration, Government Compliance Training, DFARS Business Systems, DCAA Audit Support, System Award Management (SAM), Government Regulations