Redstone Government Consulting Blog (73)

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.

In a recent Federal Circuit ruling, KBR found out that “simple negligence” in its calculations of a reasonable price range for subcontractor’s price proposal resulted in a “Gross Negligence ruling” by the courts. Kellogg Brown & Root Services, Inc. (KBR) v. U.S., No. 203-5030, slip op. (Fed. Cir. Feb, 3, 2014).

Two recent decisions by the General Accountability Office (GAO) and the ASBCA make it clear that the contractor will be held responsible for incorrect assumptions when they fail to follow up on known inconsistencies or missing information with the government, even when the government is responsible for providing the information.

The Department of Defense issued a final rule revising the DFARS “Proposal Adequacy Checklist” on January 29, 2014 to eliminate question 19 of that checklist which addresses whether the contractor cost proposal, to which the checklist applies, demonstrates that price analysis of costs for all proposed commercial items was performed.  The DOD determined that questions 14 and 17 address price analysis for all proposed materials and subcontracts, commercial or otherwise, therefore making question 19 duplicative and unnecessary. 

Government contractors having undergone DCAA incurred cost proposal audits during this past year have learned several important trends and lessons, some of which will likely continue into 2014, and produce added administrative hardships for most contractors. Some initiatives undertaken by DCAA in conjunction with the DCMA may mitigate the level and duration of audit effort and hasten contract close-outs for some contractors.  For example, more contractors will most likely be subject to low-risk determination criteria and expand the number of companies who could escape those audits.