Redstone Government Consulting Blog (64)

As published in the Federal Register on May 6, 2014 the Department of Defense has issued a final rule amending the DFARS to require certain qualifying contractors to adequately address the detection and avoidance of counterfeit electronic parts.  This was done to implement those sections of the NDAA for fiscal years 2012 and 2013 respectively dealing with the same subject and is effective May 6, 2014.

Recently DCAA’s Director, Pat Fitzgerald, announced his retirement effective August 4, 2014.  In addition to announcing his retirement, he very graciously thanked the DCAA community for their collective efforts to “clearly improve our audit quality and workforce morale, as well as the value we are adding to the warfighter and taxpayer”.   In addition, Mr. Fitzgerald assured the DCAA workforce that “we have established a foundation to make additional improvements to ensure that we continue to provide exceptional service”.

Although the DODIG report (DODIG-2014-088) was not released because of FOUO (For Official Use Only) restrictions, the summary statements published by the DOD-IG suggest that the DOD-IG has absolutely no interest in adhering to the long-standing acquisition principles concerning commercial items and commercial item pricing (wherein the price is the price and the contractor’s profit or loss is not a factor).  The DOD-IG reported that a government contractor had significantly over-charged the government for spare parts for certain military helicopters (which presumably have commercial variants); specifically, that DLA (Defense Logistics Agency) had potentially overpaid about $9 million on 33 of 35 spare parts which were sole-sourced to the particular government contractor.  To preclude this from recurring, the DOD-IG recommended a DOD acquisition policy “to establish a percentage of commercial sales that is sufficient to determine fair and reasonable prices when items are being acquired on a sole-source contract and market-based prices are used”.  Translated, the DOD-IG wants DPAP (Defense Procurement Acquisition Policy) to provide percentages of commercial sales (presumably versus sales to the Government) to “add clarity” to the FAR 2.101 definition of items or services customarily used by the general public or by non-government entities.

Not only do you get to pay for the audit, you get pay for the CPA to support an audit of the audit!

As required by Section 702 of the 2014 Bipartisan Budget Act (BBA) signed by President Obama on December 26, 2013, the June 24, 2014 Federal Register includes an interim rule setting the FAR 31.205-6(p) executive compensation statutory cap at $487K (coincidentally a 49% reduction from the most recent statutory cap of $952,308).   The June 2014 rule notes that it also implements a possible “narrowly targeted” exception to this cost limit for scientists, engineers or other specialists upon an agency determination that such exceptions are needed to ensure that the executive agency has continued access to needed skills and capabilities.  The interim rule also includes a comment period which is for 60 days after the Federal Register publication date (June 24 to August 23, 2014).

On April 21, 2014, the DAR editor submitted a proposed new DFARS rule (DFARS Case 2012-042) for Business Systems Compliance to OMB’s Office of Information and Regulatory Affairs (OIRA).  Generally, this is the last step prior to the publication of the new rules.  The full body of the proposed rule has not been published; however, OIRA has published the following abstract on May 23, 2014 as part of its semiannual compilation of all pending federal regulations:

Robert Eldridge and Michael Steen, Director and Senior Director of Redstone Government Consulting, have been selected to speak at the prestigious National Contract Management Association’s World Congress (NCMAWC). This annual training event for contract management, procurement and acquisition professionals is the largest training event of its kind and will be held at the Gaylord National Hotel and Convention Center in Washington D.C., from July 27-30.

The Department of Energy (DOE) has released its proposed amendments to the Department of Energy Acquisition Regulations (DEAR) which would subject certain DOE contracts to business systems criteria and penalties for failure to maintain adequate internal controls governing those systems.  The proposed rule, published on April 1 2014, makes official a DOE FY 2013 promise of implementing formal regulations which would mirror systems requirements already in place for DOD contracts, those systems of which are defined in DFARS 252.242-7005.

In responding to contractor criticisms that DCAA has far too many criteria within their “adequacy checklists”, DCAA has now developed and is pilot testing a new adequacy checklist which involve the same criterion, but each criterion is individually weighted to yield a true risk and materiality based adequacy determination.   Additionally, in developing the weighted criterion, DCAA has implicitly acknowledged that contractor proposals do not have to be 100 percent adequate to be auditable.

On March 25, 2014, President Obama issued executive orders raising the minimum wage to $10.10/hour for contractor employees on government contracts.  The logic, the hardworking cooks serving hamburgers to our troops should not be living in poverty (most likely a reference to the fast food chains which are located on military installations).  Simultaneously, he also directed the Department of Labor to change the federal rules to make more “salary exempt” employees eligible for overtime pay.   The current threshold of $455/week will likely be increased to a significantly higher amount noting that the last change (April 2004) increased the amount from $155/week to $455/week.  The higher amount could be as much as $950/week in which case someone earning $949/week would be eligible for overtime pay (including overtime premium) for hours exceeding 40 hours per week.   In one press release, the Department of Labor used one example of the severe inequity of the existing threshold $455/week), noting that two “hardworking” gas station managers in New Jersey were effectively making less than minimum wage.