Redstone Government Consulting Blog (55)

Service Contract Labor Standards and Davis-Bacon Act

Government contractors are subject to many rules and regulations, and many contractors don’t always pay attention to the labor standards requirements incorporated into their contracts. Employers often worry about ensuring employees are properly being paid overtime and classified as exempt or non-exempt, but is your company really paying the appropriate pay rate and benefits that may be part of your contracts? Odds are if your company is performing services under a federally funded government contract, the Service Contract Labor Standards (SCLS), Davis Bacon Act (DBA), and/or Collective Bargaining Agreements (CBA) are likely part of your contracts.

As we again approach Halloween and the night of tricks or treats, we’ve once again done some exhaustive research (more accurately searching blogs and other reliable sources) as to the trending costumes (favored by DCAA, DCMA or the Current Administration).

The incurred cost proposal is required for cost type and time and material contracts subject to the FAR 52.216-7, “Allowable Cost and Payment.” Cost type and time and material contracts have a cost reimbursable element that needs to be trued up (i.e. final indirect rates), hence the reason for the incurred cost proposal. There are many subsections, which are listed within the clause (52.216-7(d), thus defining the required schedules for an adequate indirect cost rate proposal.

On September 22, 2016, approximately 150 professionals attended the first annual “Redstone Edge” conference.  The all-day event, held at the Jackson Center in Huntsville, Alabama, is planned to be an annual event, potentially expanding to two days in September 2017 (starting on September 21, 2017).  

The 2016 conference covered a broad range of topics with an impressive variety of presenters representing government agencies, government contractors, and related advisors, including attorneys and consultants/CPAs.

One of the most important parts of a proper response to a Government Solicitation is the Basis of Estimate(s) (BOE). The BOE is a tool that is carefully developed by members of a project team through intricate analysis of the Performance Work Statement (PWS) in order to calculate the total price for the required effort. The BOE must be developed before the pricing can take place so that the pricing team knows the cost elements, which will require pricing. To put it differently, the BOE is an estimate developed to outline a Company’s expected staffing and solutions for the selected Government solicitation. This proposed estimate is combined with detailed explanations and supporting rationale which bolsters the overall conclusion. The BOE needs to be able to show the level of services (proposed labor), the skill mix required, materials, travel, etc., that will be required to deliver what is requested through the solicitation. In order to provide a realistic estimate, technical experts should be utilized in order to appropriately determine the work effort needed. The details in the BOE need to be sufficient for the technical evaluator (government or prime contractor) to understand the rationale used, the source of the underlying data, the detailed calculations involved, and the basis for any complexity factors.

Quite often our clients ask for guidance or research on a particular compliance or cost accounting topic. These types of requests generally result in a run through the usual suspects for guidance, like FAR and CAS; and the customer agency's acquisition supplement like DFARS or DEARS. What many people don't realize is that there is a wealth of other publicly available information that can shed light on some of the more subjective aspects of these regulations.

MMAS (Material Management and Accounting System reviews are a very complex undertaking for both the company involved and auditors assigned.  MMAS encompasses several areas, which by themselves can be difficult to grasp, but when combined into one overarching system can present issues often not encountered in other business system audits. DCAA auditors themselves usually do not have day-to-day exposure to most of the automated aspects of an MMAS such as with ERP systems, MRP, or grouping pegging and distribution. Through no fault of their own, the vast majority of auditors do not use or even understand the inner workings of these systems, do not use them in their review duties, and are not trained to properly address the various aspects of them. Sure, they may become exposed to them via the reviews of certain reports generated by ERP type systems, but in almost all cases, they do not understand the underlying computerized aspects of them. Most contractor personnel will have a more extensive knowledge of the various systems, but in actuality, most are only vaguely familiar with most areas other than the functional discipline they are assigned to.

In a report issued on July 26, 2016, the DOD- IG (Department of Defense Inspector General) concluded that DFAS (Defense Finance and Accounting Service) and the Department of the Army (Army General Fund or AGF) failed to support $4.44 Trillion in JV (Journal Voucher) Adjustments.   

Provisional billing rates are established by either the ACO (Administrative Contracting Officer) or DCAA (Defense Contract Audit Agency).   As described in a 2014 DCAA Audit Policy (MRD 14-PPS-012, dated July 22, 2014), per FAR 42.704, provisional billing rates should be established early within a contractor fiscal year for purposes of invoicing indirect costs (on cost-type contracts or any contract which ultimately requires final indirect cost rates per FAR 42.705).   For anyone familiar with FAR, it is self-evident that provisional billing rates are based upon FAR Part 42, which details contract administration versus proposal contract pricing, (typically FAR Part 15, if cost or pricing data is required).   Although there may be similarities, the proposal process involves solicitation clauses, whereas a contract award contains contractual clauses.

The Bipartisan Budget Act of 2013 (BBA) has changed the game for executive compensation limitations yet again. Before 2012, US Government contracts subject to the FAR Part 31 Cost Principles were subject to the applicable fiscal year (FY) Compensation Cap established by the OMB (Office of Management and Budget) on the five most highly compensated employees in management positions. This changed again for contracts awarded from January 1, 2012 through June 23, 2014 to apply to all contractor employees performing DoD, NASA, and Coast Guard contracts, but apply only to the top five executives for remaining agencies. Every year the Office of Management and Budget publishes a memorandum to the Heads of Executive Departments and Agencies announcing the “benchmark compensation amount” for certain executives and contractor employees. During contractor’s fiscal years 2013 and 2014 the executive compensation dollar limitation was $980,796 and $1,144,888, respectively. Now, the BBA limits how much a contractor could charge the federal government for an employee’s compensation to $487,000 to all contractor employees for new contracts subject to FAR 31.2 awarded on or after June 24, 2014. This provision limitation change within a fiscal year has caused a contractor to be subject to multiple employee compensation caps (FAR 31.205-6(p)) within the same fiscal year.