Redstone Government Consulting Blog (59)

DCAA has recently released a new version of the ICE Model, which is the electronic version of the “Model Incurred Cost Proposal” that provides contractors with a standard ICE submission for preparing adequate incurred cost proposals in accordance with FAR 52.216-7, “Allowable Cost and Payment.”  This version 2.0.1e released in December 2015, may be downloaded from DCAA website.  There were no computational changes to the newly released version, however, additional information will be required for Schedule J.  Schedule J provides DCAA with the Subcontract Information such as contact information, subcontract value, period of performance, costs incurred for each subcontractor, and award type.  In the 2.0.1e version, additional information such as prime contract value and subcontractor’s duns number has been added to the required information for this schedule.  This is the second version of the ICE Model released this year.  ICE Version 2.0.1d released in August 2015, had no computational or functional changes to the previous Version 2.0.1c (June 2012).

Requirement for Improved Auditing of Contracts

In late November, President Obama signed the 2016 NDAA (National Defense Authorization Act, S.1356)) which includes a number of sections related to Acquisition Policy or Acquisition Management.  Of particular note for those subject to DCAA contract audits, a requirement for improved auditing which is focused on the so-called incurred cost audit backlog (contractor indirect cost rate proposals (ICPs), submitted annually as required by FAR 52.216-7(d)).   Section 893 prohibits DCAA from performing any audits for non-defense agencies (e.g. NASA) unless DOD certifies that DCAA is current on the ICP backlog.  “Current” is defined as 18 months of incurred cost inventory, further defined as “the level of contractor incurred cost proposals in inventory from prior years that are currently being audited by DCAA”.  As a point of clarification, the inventory should include ICPs currently being audited or those in the queue awaiting audit.  Based upon DCAA’s 2014 report to Congress, DCAA had approximately 18,185 ICPs valued at $822 billion (on hand as of 9/30/2014).  Based upon May 2015 public comments made by DCAA’s Deputy Director, the annual inventory is approximately 7,500 ICPs which would implicate an approximate annual value of $339 billion.

Since the last wave in 2012, mostly brought on by a fear of tax changes, we haven’t seen a lot of activity with small business M&A.  Many 50m to 500m government contractors went the way of the ESOP during the last decade.  These entities, and small businesses in general have enjoyed organic growth during the past 5 years as more and more procurements came out for small businesses.  The ESOP’s are sitting on a pile of cash and the shareholders are clamoring for more net income/increased share values.  As these companies blow through their NAICS codes, their appetite for growth is steering them in an M&A direction.

In today’s budgets constrained environment U.S. Government contracting officers are seeking every opportunity to obtain discounted or reduced prices for services and materials, and as a tax payer that should make us all happy. However, for those of us who work in the government contracting industry the sight of LPTA solicitations, and enhanced scrutiny of proposals does make work life more challenging. One of the areas that we see challenged by contracting officers either during the proposal process or after award is the application of G&A on direct travel associated with the contract. This might be a solicitation provision, a Government expectation for contractor concessions during negotiations or a Government interpretation after contract award.

“Help! We received a letter from our ACO informing us that they will be conducting a Contractor Purchasing System Review (CPSR) three months from now – can you help us?” This is a scenario we hear all too frequently these days. As promised, DCMA has ramped-up their efforts to ensure contractors purchasing systems are being reviewed and assessed for adequacy.

The simple English Wikipedia encyclopedia defines a Tsunami as “a series of fast moving waves in the ocean caused by powerful earthquakes or volcanic eruptions”. Arguably one can equate negative DOD Inspector General Reports to powerful earthquakes or volcanic eruptions at least to those organizations in the path of these Government oversight tidal waves. What tidal waves you may ask? Well, let’s look at two recent reports from the DOD IG very critical of DCMA; Report No. DODIG-2015-139 and Report No. DODIG-2016-001.  

DFARS 252.242-7006(c)(8) specifically requires management reviews or internal audits of the system to ensure compliance with the contractor’s established policies, procedures.

One of the first things a DCAA auditor looks at when auditing a contractor’s accounting system is its policies and procedures. Policies and procedures represent control activities that are essential for an adequate system of internal controls. Good policies and procedures help ensure consistent operations in accordance with management objectives. DCAA cites policy and procedure inadequacies or the failure to comply with policies and procedures in virtually every deficiency report it issues related to internal controls.

As we approach Halloween and the night of tricks or treats, we’ve done some exhaustive research (more accurately hypothesizing) as to the trending costumes (favored by DCAA or DCMA). Some of the favorites:

A question we are frequently asked is “Do small contractors really need written policies and procedures in place to pass....”   This is finished with many types of audit - pre-award accounting system, post award accounting system, or even purchasing system?

The Foreign Corrupt Practices Act prohibits payments made directly or through intermediaries to foreign government officials to assist in obtaining business, retaining business, or directing business to any person.

The Foreign Corrupt Practices Act (FCPA) continues to be a high priority of enforcement for the Securities Exchange Commission (SEC) and the Department of Justice (DOJ). The U.S. Government’s aggressive approach to transactional bribery of foreign government officials will be anything but relaxed as companies and business people can expect a continued prioritization of FCPA cases. The DOJ has added more prosecutors and more resources than ever before. Additionally, U.S. regulators have stated that penalty amounts are not going down.